Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Does the loser get to keep the name?

There have been reports that after the proposed “merger of equals” of NYSE Euronext and Deutsche Börse, the combined entity would be called “DB NYSE Group.” The politicians are up in arms about this with the senior Senator from New York, Charles E. Schumer stating:

… a sticking point that could emerge, even after a deal is announced, is the name of the new entity.

Some may say what’s in a name, but I say a lot. The New York Stock Exchange is a symbol of national prestige, and its brand must not suffer under this merger.

It is totally logical to keep the N.Y.S.E. name first. If for some reason, the Germans sought an alternative option, it could be an indication that they are trying to wield an upper hand in the new company and would seek to make other business decisions that could go against New York. The name is an important bellwether of whether this deal is regarded as a merger of equals.

In banking mergers, we have a rule of thumb that says that the loser gets to keep the name. Travelers bought Citi and named the combined entity as Citigroup. NationsBank bought Bank of America and became Bank of America. In the long chain of mergers that produced JP Morgan Chase, at every stage the loser got to keep the name – Chemical bought Chase and adopted the Chase name; Chase bought JP Morgan and put the loser’s name first to become JP Morgan Chase; finally, Dimon’s Bank One bought JP Morgan Chase and retained the loser’s name.

In exchange mergers, the winner has not bothered to keep the loser’s brands simply because the brands of exchanges are not really worth anything. So long as an exchange has the contracts and the liquidity, nobody cares what it is called. Long ago, the London Stock Exchange rechristened itself as the “International Stock Exchange of the United Kingdom and Ireland”and then went back to being the London Stock Exchange again without anybody bothering about it.

Acquirers have therefore been quite happy to drop or demote the names of the exchanges that they buy. This is what happened when the LSE bought Borsa Italiana or when NYSE bought Euronext or when Nasdaq bought OMX.

Another complication is that equity trading (particularly in the US) is a cut throat business and much of the profit (and valuation) is in derivative trading. In the case of the proposed DB NYSE, it is Deutsche Börse that has the most valuable derivative contracts. The most important derivative contract at NYSE Euronext is the Euribor futures which trades on Euronext and not on NYSE. One could argue that the merged entity should be called DB Euronext.

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