UPDATE: NYSE-Deutsche Boerse Targets Savings In Tech, Clearing

NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF) will wrest most of the planned merger's $400 million in cost savings from technology and trade-clearing operations, the expected chief executive of the combined entity said Tuesday.

The new exchange company aims to streamline European derivatives and share trading and U.S. stock-options trading across multiple platforms, while cutting down on future project spending and administrative costs, according to Duncan Niederauer, current CEO of NYSE Euronext.

"This is an industry that lends itself to scale," said Niederauer, speaking during a conference call after both companies' boards approved the deal.

Bringing together NYSE Euronext's and Deutsche Boerse's market functions--particularly their lucrative and little-overlapping European derivatives businesses--will create an exchange group with a combined $5.4 billion in revenue last year, nearly doubling that of its next-largest rival, CME Group Inc. (CME).

Linking NYSE Euronext's London-based futures platform and European stock markets to Deutsche Boerse's existing facility for clearing transactions could bring much of the anticipated savings, curbing plans for NYSE Euronext to construct its own proprietary clearing unit on the continent.

Such a move would also boost revenue by funneling the fees associated with clearing Liffe-listed derivatives to the combined entity, according to Gregor Pottmeyer, Deutsche Boerse's chief financial officer who also will fulfill that role under the merged entity.

Planned streamlining will also see the creation of a single order book for European share-trading, said Niederauer.

Technology and operations are also expected to be slimmed down and standardized across the three U.S. options markets run by the combined entity, which together represent about 40% of the domestic market for options-contract trading.

Deutsche Boerse's Eurex unit owns the International Securities Exchange, while NYSE Euronext operates two options-trading platforms, Arca and Amex.

The deal announced Tuesday will be immediately accretive to adjusted earnings for both exchange companies, according to a press statement. One-quarter of the anticipated cost savings are seen achieved within 12 months of the deal closing, with 50% realized by year two and the rest by the end of the third year.

Costs tied to the restructuring are estimated at 1.5 to 2 times the full run-rate of cost synergies.

Niederauer outlined broad potential to grow revenue by about $133 million by putting the two organization's trading, clearing and technology businesses together. Putting derivatives and shares on the same platform will deepen liquidity available for investors, with the possibility to cross-distribute European stocks across multiple jurisdictions.

Merging expands the potential client roster for both companies' technology and market-data offerings, as well as Deutsche Boerse's STOXX index franchise, according to the exchanges.

Shares in NYSE Euronext recently were off 3.3% in midday trading Tuesday at $38.16. Deutsche Boerse shares closed 2.4% lower at EUR59.85.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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