The Work

February 1, 2012 6:51 PM

Deals Update: NYSE, Deutsche Börse Collapses; Roche Names Nominees to Illumina Board

Posted by Tom Huddleston Jr.

The chief executives of NYSE Euronext and Deutsche Börse met early last month in hopes of salvaging their proposed $9.7 billion merger. Now, the exchanges are set to abort a deal that would have created the world's largest stock exchange by volume after European regulators officially came out against the deal. 

NYSE and Deutsche Börse said Wednesday that they have entered into discussions to terminate the merger agreement they signed last February, and which was approved by shareholders in July. The announcement came the same day the European Commission said in a press release that it would block the merger out of fear that "it would have resulted in a quasi-monopoly" in the market for European futures traded globally on exchanges.

The Deutsche Börse board issued a statement calling Wednesday "a black day for Europe and for its future competitiveness on global financial markets." Both exchanges said they took issue with the commission's decision and with the concessions they had been asked to make in order to win the approval of the European regulator, which launched its review of the merger in August.

As Bloomberg and The New York Times reported last month, the chief executives of both exchanges met in New York to discuss what further concessions they might make in order to win regulatory approval. The commission had told the exchanges that the concessions offered to that point were lacking. The Financial Times reported that the EU regulators drafted an official recommendation asking that the exchanges spin off part of their derivatives business. Both companies refused to take that step.

NYSE Euronext chairman Jan-Michiel Hessels said in a statement that the two exchanges offered several alternative suggestion aimed at easing the regulator's concerns. "But, as we made clear throughout this process, we would not agree to any concessions that would compromise or undermine the industrial and economic logic of the proposed combination," he added.

The Times reports that NYSE will likely turn to smaller acquisitions and cost-cutting in order to meet its growth goals. NYSE said in its announcement that it will look to return capital to shareholders, starting with resuming a $550 million share repurchasing program once the merger is officially terminated.

As The Am Law Daily has reported, the NYSE and Deutsche Börse combination was expected to face an uphill regulatory climb from the moment it was announced. Throughout the process—which included NYSE having to fend off overtures from NASDAQ OMX and IntercontinentalExchange (ICE)—the two exchanges have fielded a large legal team.

According to our previous reports, Linklaters and Cadwalader, Wickersham & Taft have been advising Deutsche Börse on the deal, while four firms have landed work for NYSEWachtell, Lipton, Rosen & KatzCleary Gottlieb Steen & Hamilton; Amsterdam-based Stibbe; and Milbank, Tweed, Hadley & McCloy.

Cleary competition partners Nicholas Levy in London and Brian Byrne and counsel Christopher Cook in Brussels are serving as E.U. antitrust counsel to NYSE.

Alec Burnside was leading Linklaters's antitrust team advising Deutsche Börse until he left the firm for Cadwalader in April 2011. He continued to advise the German exchange on antitrust matters related to the deal from his new firm, Cadwalader confirmed last month. A Linklaters spokeswoman confirmed that the firm's antitrust team advising Deutsche Börse includes Dusseldorf partner Carsten Grave, and New York partners Thomas McGrath and Jeffrey Schmidt.

The NYSE-Deutsche Börse deal is the latest in a line of exchange tie-ups to crumble during the past year. A proposed merger between the groups that control the Toronto Stock Exchange and the London Stock Exchange was abandoned last June. That cleared the way for the Toronto exchange to be acquired by the Maple Acquisition Group—a consortium of Canadian banks and financial firms—but that roughly $3.8 billion bid has yet to be embraced by shareholders as the Maple Group continues to seek regulatory approvals. The Maple Group's offer is set to expire at the end of February.

Last April, Australian regulators scuttled a proposed merger between that country's main exchange and Singapore Exchange Limited over fears that the deal would negatively affect Australia's economy.

In other deals news . . .

Roche announced Tuesday that it will nominate a group of independent directors for election to the board of Illumina Inc., the Swiss health care giant's target in a hostile takeover bid launched last week.

As The Am Law Daily reported last week, Roche has taken its $5.7 billion offer for San Diego–based gene-mapping equipment-maker Illumina directly to the company's shareholders. Now, Roche is hoping that those shareholders will elect a majority of its hand-selected directors to the Illumina board in order to push the takeover forward.

After saying last week that it would review the Roche bid, the Illumina board employed a poison pill shareholder rights plan in an effort to block a hostile takeover.

Roche named six nominees, as well as five alternate nominees, as part of the slate it intends to put up for election at Illumina's 2012 annual meeting—which has not yet been scheduled, but has been held in March or April in past years, according to Bloomberg.

One of the six nominees is Earl "Duke" Collier, Jr., chief executive of 480 Biomedical, a senior adviser to Polaris Venture Partners, and a former partner at Hogan & Hartson (now Hogan Lovells). (One of the five alternates—Jonathan Macey—is a corporate law professor at Yale University who appeared on The Daily Show with Jon Stewart Tuesday to warn amateur investors about what he views as the potential perils of private equity buyouts.)

The slate of nominees for Illumina's board is being represented by Latham & Watkins, with a team led by New York corporate partner David Allinson. Corporate partner Adel Aslani-Far is also advising.

As we have previously reported, Davis Polk & Wardwell is advising Roche on its hostile bid, while Illumina has hired Dewey & LeBoeuf as counsel.

Two weeks after rejecting an unsolicited $1 billion bid from Houston-based Westlake Chemical, rival chemicals company Georgia Gulf has spurned Westlake's sweetened $1.2 billion offer.

Westlake announced early Wednesday that it had bumped its offer for Atlanta-based Georgia Gulf from $30 per share in cash to $35 per share. However, according to a statement issued later Wednesday, Georgia Gulf had already rejected the revised offer when presented with it on January 27. The Georgia Gulf board believes that the company's "underlying intrinsic value" exceeds its stock price, which closed Wednesday at $35.08. Westlake, meanwhile, has suggested that Georgia Gulf's board is refusing to negotiate—a claim Georgia Gulf rejects.

As we have reported, Georgia Gulf rejected Westlake's first offer and adopted a poison pill shareholder rights plan on January 17.

Vinson & Elkins is advising Westlake on its bid, while Jones Day and Delaware firm Richards, Layton & Finger are representing Georgia Gulf.

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