WASHINGTON (CN) - Deutsche Börse AG's $9 billion purchase of New York Stock Exchange owner NYSE Euronext has been approved by the Department of Justice, if the Frankfurt-based company sells its 31.5 percent stake in another U.S. equity market, Direct Edge Holdings, but the merger's approval in Europe is uncertain.
The Department of Justice said the purchase as originally proposed "would have substantially lessened competition for displayed equities trading services, listing services for exchange-traded products, including exchange-traded funds, and real-time proprietary equity data products in the United States."
The Justice Department's Antitrust Division filed a civil complaint on Thursday to block the proposed acquisition. It simultaneously filed a proposed settlement that, if approved by the court, would resolve the lawsuit.
In addition to divestiture of the ownership stake in Direct Edge held by a Deutsche Börse subsidiary, the settlement immediately prohibits NYSE and Deutsche Börse from participating in the governance or business of Direct Edge.
"Without the divestiture and other restrictions obtained by the Justice Department, a combined NYSE and Deutsche Börse entity could influence the actions of Direct Edge, and thereby lessen the zeal of an aggressive and innovative exchange competitor," a Justice Department spokeswoman said in a statement.
Deutsche Börse's subsidiary ISE owns 31.5 percent of Direct Edge and has significant governance rights, including key voting and special veto rights and the right to appoint three members to Direct Edge's board of managers, and one member to each of the corporate boards of Direct Edge's two exchanges.
Under the settlement, ISE will divest its interest in Direct Edge within 2 years. NYSE and Deutsche Börse must provide a written plan before closing their transaction, explaining the steps they will take to remove any Deutsche Börse affiliate from governance of Direct Edge until the divestiture occurs.
Within 2 calendar days of closing the transaction, any Deutsche Börse-affiliated officer, director, manager, employee, affiliate or agent must resign from the board of all Direct Edge entities.
The merging parties are prohibited from suggesting or nominating any candidate for election to the board of any Direct Edge entities or having any officer, director, manager, employee or agent serve as an officer, director, manager or employee with or for any Direct Edge entities.
The merging parties cannot vote, exert or attempt to exert any influence, or even participate in nonpublic Direct Edge meetings or receive any nonpublic information from Direct Edge, except to the extent necessary to fulfill requirements of the proposed settlement or financial reporting obligations. The merging parties must also continue to provide certain contractual services to Direct Edge, subject to a firewall.
To be consummated, the merger needs approval from the European Union, where it faces "headwinds," according to Reuters.
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