Clearstream Board Considers Euroclear, Deutsche Boerse Bids

LUXEMBOURG--The board of Clearstream, Europe’s largest clearing and settlement agency, met to discuss proposals from rival Euroclear and major shareholder Deutsche Boerse.

The meeting, on Friday, Dec. 7, looked at proposals from Euroclear and Deutsche Boerse to merge with or buy out Clearstream respectively. However, a Clearstream spokesperson says, "This does not mean we have a ‘for sale’ board outside. We have regular board meetings every two to three months, and the media has turned this one into a life-changing moment. We are just considering all our options -- one of which is ‘no change.’ "

Euroclear would like to merge with Clearstream to produce a single clearing company, whereas Deutsche Boerse, which already owns 50 percent of Clearstream, would like to purchase the remaining 50 percent to have full control of securities processing from end-to-end, i.e. straight through processing from point of trade right through to settlement. It would also enable Deutsche Boerse to offer a settlement service tailored to its own markets.

Euroclear says there is a trend towards consolidation of the settlement infrastructure in Europe, which currently operates over about 20 settlement systems, costing 1.2 billion euros per year. A spokesperson for Euroclear says that by merging with Clearstream, this could be reduced by 200 million euros per year in operating costs, plus additional spin-off savings from firms using one system rather than two.

Euroclear believes that Cedel, a consortium of 93 financial institutions and Clearstream users that owns the remaining 50 percent of Clearstream, would rather see a merger between the two clearing agencies and is preventing Deutsche Boerse from buying the remainder outright. But Euroclear does not have access to the same financial data as part-owner Deutsche Boerse, which is confident of a positive result from the Clearstream board meeting. However, depending on the outcome of the meeting--i.e. if Deutsche Boerse’s proposal is not accepted--Euroclear hopes to be able to continue to negotiate with Clearstream, which believes that a successful Euroclear would want to see a reduction in Deutsche Boerse’s shareholding.

With its 50 percent stake in Euroclear, Deutsche Boerse is effectively able to block any merger it doesn’t like. A Deutsche Boerse spokesperson confirms that Deutsche Boerse chief executive Werner Seifert recently blocked a proposal from Euroclear on the grounds that it did not meet all Clearstream’s requirements. No further details were given.

However, it has no control over the remaining 50 percent owned by Cedel. Clearstream was formed in January 2000 through the merger of Cedel International and Deutsche Boerse Clearing. Cedel could sell its share to Euroclear, but this is not what Euroclear wants, and would only produce a stalemate with Deutsche Boerse. Clearstream could issue more shares, thereby diluting Deutsche Boerse’s stake, but is in the catch-22 position of not being able to do this without Deutsche Boerse’s consent.

All parties involved refuse to give specific details of the offers.

Clearstream recently announced that it will be relocating its head office to a new development, consolidating its 13 different Luxembourg locations to four buildings on Avenue John F. Kennedy on the Kirchberg Plateau, Luxembourg. This aims to satisfy its long-term growth requirements by providing a scalable solution for up to 3,000 workstations and a new purpose-built data center, staff restaurant, training facility and a commercial banking location for Dexia. The first building will be occupied in April 2003, with the balance of staff moving later in the year.