Five years ago, the scrap between the NYSE group and Deutsche Börse for control of Euronext, and Nasdaq’s attempt to buy the London Stock Exchange, appeared to be the end game. Now we know different. On Wednesday, the LSE said it would merge with TMX, operator of the Toronto Stock Exchange. The subsequent revelation that Deutsche Börse and NYSE Euronext were in advanced merger talks then put that deal in the shade.
The first end game involved acquisitions at silly valuations (the NYSE’s earnings multiple peaked at about 66, according to Bloomberg data) backed by overblown growth stories. Politicians treated exchanges as a matter of national importance. The Dow Jones Global Exchanges index is still 46 per cent below its peak. The new end game recognises the changed reality for exchanges. These are mergers of equals that are about cutting costs. Investors seem fine with that, judging by the 16 per cent pop in NYSE Euronext’s shares after its talks were announced, and the positive reception for the LSE-TMX deal.
What has changed? The first “end game” valuations reflected the credit bubble, of course, but also unrealistic expectations for the sector as it enjoyed a one-off upward shift with the move from mutuality to a