SHAREHOLDERS APPROVE NYSE-EURONEXT MERGER

UNCLAS SECTION 01 OF 02 PARIS 007892

SIPDIS

SIPDIS

PASS FEDERAL RESERVE
PASS CEA
STATE FOR EB and EUR/WE
TREASURY FOR DO/IM
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER
USDOC FOR 4212/MAC/EUR/OEURA

E.O. 12958: N/A
TAGS: EFIN ECON PGOV FR
SUBJECT: SHAREHOLDERS APPROVE NYSE-EURONEXT MERGER

Ref: Paris 3447


1. SUMMARY: As expected, NYSE and Euronext shareholders voted in
favor of a merger, clearing the most significant remaining hurdle to
creating a transatlantic stock exchange. Opposition to the merger
largely crumbled after NYSE's surging stock price made its offer too
attractive to refuse, and after NYSE made concessions on governance
rules and gave assurances that U.S. regulations, notably the
Sarbanes-Oxley law, would not spill over onto European firms. END
SUMMARY.

Shareholders Vote to Merge
--------------

2. Shareholders of Euronext, the Paris-based federation of European
stock exchanges, approved a merger with the New York Stock Exchange
(NYSE) by a margin of 98.2 percent on December 19. NYSE
shareholders voted in favor of the merger by a 99.7 percent margin
on December 20. The margin of success reflects the high premium
NYSE will pay to Euronext shareholders, as well as the value
shareholders attached to guarantees NYSE provided to address
European concerns about governance of the new firm.


3. Early opponents to the merger had included French President
Chirac, who had commented that he favored a "European solution," in
reference to an earlier competing bid from the Frankfurt-based
Deutsche Borse (DB). DB, however, eventually dropped its bid after
the rising price of NYSE shares put its offer out of reach.

Governance Issues
--------------

4. Bowing to pressure from Finance Minister Thierry Breton and the
influential Parisian financial lobby Europlace, NYSE agreed to
modify the composition of its proposed governing board. Under the
initial NYSE offer, Europeans would have been outnumbered by eleven
to nine on the board of directors. Once NYSE/Euronext obtains final
regulatory approvals, the new NYSE/Euronext board should have eleven
American citizens including the current director of the NYSE, and
eleven Europeans including nine members of the Euronext supervisory
board and Euronext CEO Jean-Francois Theodore. The NYSE/Euronext
council and the committee for nomination and governance will have
the power to change parity rules, but only by a two-third majority
vote.

Extraterritoriality Laid to Rest
--------------

5. Because of concerns in Europe that strict U.S. accounting and
governance rules might be imposed on Europe, NYSE drafted a special
arrangement consisting of two stand-by structures, one involving a
Dutch foundation and one involving a Delaware trust. The Dutch
foundation can take action to mitigate any change in U.S law that
could have extraterritorial impact on Europe. Likewise, the
Delaware trust can take action to mitigate any change in European
law that could have extraterritorial impact in the U.S.

Paris Europlace Gives its Support to NYSE Euronext
-------------- --------------

6. Paris Europlace commissioned a French capital markets lawyer to
analyze the efficiency of the Dutch foundation scheme, and decided
there was little risk of US regulations being imposed on European
companies listed on Euronext. On the eve of the shareholder vote,
Paris Europlace withdrew its objections to the merger, saying the
proposed governance structure of NYSE/Euronext, and assurances from
European regulators, addressed most of its concerns.

European Regulators Approve the Merger
--------------

7. Euronext regulators announced on December 5 they had "no intent
to object to the NYSE/Euronext merger; the final decision by a
committee of Euronext regulators will depend on certain assurances
and commitments in specific areas as well an agreement on final
agreements." Euronext regulators said they are working with the
U.S. Securities and Exchange Commission (SEC) on a memorandum of
understanding for coordinated regulation and supervision of the
NYSE- Euronext group, to be signed when the merger receives required
approvals and the merger offer is unconditional.

Finance Minister Says Dialogue Must Continue
--------------

8. In a November 27 Euromoney Conference in Paris, French Finance
Minister Thierry Breton proclaimed that the NYSE-Euronext plan had
been "modified sensibly." He urged Euronext to stay in contact with
the users of its trading platform to ensure that the transatlantic
alliance fills their needs.


PARIS 00007892 002 OF 002


Auditors Put High Value on Merger
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9. The bottom line for most shareholders, of course, turned out to
be the share and cash offer from NYSE. The independent expert
selected by Euronext concluded that the offer made to shareholders
is "equitable from a financial point of view." Based on an estimate
of future cash flows, cash premiums would amount to 14.5-19.7
percent of Euronext's share price.

Some French Politicians Still Grumbling
--------------

10. Socialist politicians, including Arnaud de Montebourg, a close
adviser to presidential candidate Segolene Royal, described the
NYSE/Euronext merger as "a Trojan Horse for American legal
imperialism." Jean-Pierre Chevenement, the head of the leftist
"Republican and Citizen Movement" accused the government to have
been "scandalously absent," and "not to have tried to impede" the
merger between the NYSE and Euronext, which he deemed as "an
absorption." Center-right UDF head of the Senate Finance Commission
Jean Arthuis declared "he was shocked" by the merger, saying it was
a failure for Europe, and "we fought to get the euro, and now the
financial community lets New York take control of Euronext."

Next Steps in the NYSE/Euronext Merger
--------------

11. The merger still is subject to approval by the Dutch finance
minister, expected in the second half of January. The NYSE/Euronext
merger also has to clear various other European regulatory
authorities. NYSE and Euronext planned to complete the deal in the
first quarter of 2007.

NYSE/Euronext Predicts Lower Trading Fees
--------------

12. The alliance will provide international exposure and the
opportunity to become the euro zone's biggest primary market.
NYSE/Euronext will have a market capitalization of about 29 billion
dollars, putting it ahead of Chicago Mercantile Exchange/CBOT, the
global derivative exchange valued at about 25 billion dollars.
According to Euronext, the merger will allow a reduction of trading
fees by between 10 and 15 percent after two or three years. In
reducing its fees, NYSE/Euronext hopes to attract more investors,
including large investment banks.

Comment
--------------

13. This merger comes amid a rush for consolidation among global
exchange operators. The Parisian financial community hopes to
develop its role as a global financial center.

HOFMANN#