DUTCH COULD BLOCK NYSE/EURONEXT MERGER

UNCLAS THE HAGUE 002275 SIPDIS SIPDIS SENSITIVE STATE FOR EUR/UBI (RREITER) USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT TREASURY FOR IMI/OASIA/VATUKORALA PARIS ALSO FOR OECD STATE PLEASE PASS FEDERAL RESERVE USEU FOR JENNIFER UNDERWOOD E.O. 12356: N/A TAGS: EFIN ECON EINV ELAB NL SUBJECT: DUTCH COULD BLOCK NYSE/EURONEXT MERGER REF: A) THE HAGUE 1391 B) THE HAGUE 1726 C) THE HAGUE 1864 THIS CABLE CONTAINS PROPRIETARY INFORMATION. IT IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. ¶1. (SBU) SUMMARY. Concerns about the proposed NYSE/Euronext legal corporate structure could lead the Dutch Finance Ministry to block the announced merger if these issues are not addressed. Finance Minister Zalm will raise these concerns with visiting NYSE CEO Thain next week, and his ministry will continue to seek high-level U.S. consultations on the matter. END SUMMARY. NEW CONCERNS OVER MERGER -------------- ¶2. (SBU) Despite public assurances from the Securities and Exchange Commission that a NYSE/Euronext merger would not oblige Euronext-listed companies to comply with U.S. securities regulations, Dutch politicians, regulators, and investors remain concerned about how national rules would apply across borders and whether U.S. companies could evade U.S. regulations under such an arrangement. Until recently, the Ministry of Finance (MOF) was confident that such controversial regulatory matters could be resolved before shareholders vote on the proposed merger in mid-December. (See reftels for further background reporting.) Last week, MOF officials told Econoff that the proposed NYSE/Euronext corporate legal structure offers inadequate protection against the potential cross-border application of U.S. regulations. These officials expect the European taskforce of regulators, which is tasked with assessing this proposed structure, to present similar conclusions within the next few days. A negative assessment would result in a MOF decision to block the merger. ¶3. (SBU) MOF officials also indicated that several traditional Euronext shareholders have sold their stake in the exchange over the past few months, and the company is now, to a large degree, owned by hedge funds. It remains to be seen, they said, how these shareholders will vote on the merger at the special December shareholders' meeting. Moreover, the future management structure within a NYSE/Euronext merger is still unclear, a cause for further concern given regulatory framework implications. ¶4. (SBU) In a phone call with Econoff this week, a senior Euronext legal advisor also expressed concern about NYSE/Euronext's future management structure, noting problems in convincing the NYSE to allow a formal strengthening of national-level management to appease European issuers and regulators. In contrast to MOF views, however, this contact was confident that the proposed corporate structure was solid enough to shield the merged company from future U.S. regulatory spill-over. DUTCH CONTINUE TO SEEK CONSULTATIONS -------------- ¶5. (SBU) Meanwhile, the MOF continues to seek consultations with the U.S. Congress, Treasury, and others in the event that concerns about the proposed NYSE/Euronext corporate legal structure are addressed and the merger goes forward. Finance Minister Zalm will also raise these issues with NYSE CEO John Thain when he visits the Netherlands October 24. ARNALL