Unless you’re in the financial services industry, most Americans have no idea about the proposed merger between the New York Stock Exchange and Deutsche Börse (technically it will be a merger between NYSE Euronext, Inc., founded April 2007, and Deutsche Börse). The NYSE has been an American institution and free market icon. Created in 1792, the same year President George Washington was re-elected to a second term in office, the exchange remains the world’s largest stock exchange. Talks are in the works that could result in a European takeover and management control of the Big Board.
Does it bother me? I am not one that like governments meddling in the marketplace, but for some reason, this transaction may be an exception. There is something about a venerable and very important U.S. institution being run by Europeans that strikes a patriotic nerve. While there are a great deal many benefits that will come with this lopsided marriage, I have yet to read why such a deal is in the U.S. national interest.
There is a government agency called the Committee on Foreign Investments in the United States (CFIUS) that can review that national security impact of proposed transactions that will result in the foreign control of a U.S. company. The NYSE is part of the global but also the U.S. financial system, a critical part of our homeland infrastructure. Whether this deal “threatens to impair the national security” is impossible to predict either way; however, has anyone in the U.S. Government taken a closer look? I would rather have them looking at this than quibbling over a federal government shut down.
Besides a financial and business intelligence bonanza for the Europeans, business and investment practices by our cousins in places such as Iran raise cause for concern. In fact, Deutsche Börse is being sued by families of U.S. soldiers for claims they have against the Iranian regime. The families allege that Deutsche Börse has been hiding Iranian assets in a Luxembourg affiliate. With regards to Iran, European governments are not as tough as we are on the regime; our sanctions are a lot more stringent. Then there are other issues such as onerous European Union regulations that, under U.S. law, will raise questions on issues ranging from the environment, workplace laws, as well as government subsidy of businesses (very common in Europe).
While on the question on U.S. sanctions, U.S. persons cannot be involved in international transactions that involve bad actors such as state sponsors of terrorism. How will this new entity deal with this issue when bad actors currently traded on Deutsche Börse or new ones seek access? Earlier this year the Deputy Treasury Secretary Neal Wolin told Reuters that he did not have national security concerns “at this moment” about the proposed merger. How can he say that without a full blown inter-agency CFIUS review?
My sense is that, unless Congress weighs in, the proposed merger may not trigger a CFIUS review; however, if you consider recent high profile cases maybe it should. This is much more or equally as important as the CFIUS review of the Dubai Ports World proposed port acquisitions in 2006 as well as the 2005 acquisition of California’s Sequoia Voting Systems by a Dutch company linked to Venezuela’s Hugo Chavez.
Former House Speaker Newt Gingrich called the proposed merger a “fundamental blow” to the U.S. Indeed. Maybe its time for folks on the Hill and the Obama Administration to take a closer look at this matter before a bad case of seller’s remorse. On bright note, the NASDAQ has made a run at the deal. Maybe the market processes will fix this issue before the federales weigh in.