Wednesday 21 February 2018

LSE and Deutsche Boerse are plotting multi-billion euro merger

Traders work on the new floor at the Deutsche Boerse in Frankfurt. Photo: Bloomberg News
Traders work on the new floor at the Deutsche Boerse in Frankfurt. Photo: Bloomberg News
The London Stock Exchange. Photo: PA

Ludwig Burger and Andreas Kroner

Deutsche Boerse and the London Stock Exchange are taking a fresh run at a multi-billion euro merger that would create a European trading powerhouse, in a bid to take on ICE, the US exchange making in-roads into Europe.

Nearly 16 years after their first attempt to merge, the London and Frankfurt exchanges confirmed they were holding detailed discussions on an all-share merger under a new holding company.

It would give Deutsche Boerse shareholders a 54.4pc stake and LSE shareholders 45.6pc.

News agency Reuters revealed the plans yesterday. "There can be no certainty that any transaction will occur," the LSE said, adding that the two parties expected to provide an update in due course. Under British takeover rules, Deutsche Boerse must either make an offer or announce it will not do so by March 22, unless it obtains an extension from the UK mergers regulator.

Shares in LSE closed nearly 14pc higher, giving it a market capitalisation of £9.1bn (€11.6bn). Shares in Deutsche Boerse closed up 3.2pc, giving it a market capitalisation of €14.7bn.

Jonathan Goslin, an analyst at Numis Securities, said a deal should bring significant cost and revenue synergies - an area in which the LSE had a good track record of execution - but also notable challenges.

He cited competition regulation and the two exchanges' differing views on how to structure their business - the LSE is in favour of open access and Deutsche Boerse operates a more closed model - as well as national pride as potential obstacles.

"Would the UK politicians be happy with the main UK exchange being owned by a foreign entity?" he asked.

The Irish Stock Exchange uses Deutsche Boerse's Xetra trading system, and renewed a contract for its use just last week.

One person familiar with the matter said the merger would function even in the case of a Brexit, on which the country will vote in June.

"They have a large business in Continental Europe and a dynamic capital market on the Anglo-Saxon side. That's an attractive combination, Brexit or no Brexit," the person said. The merger would combine the LSE's large share trading operation with the well-established derivatives trading that Deutsche Boerse's Eurex would bring.

The LSE, headed by Frenchman Xavier Rolet, has long sought to have a real presence in derivatives, a major growth area, after it failed to buy the London derivatives trading platform LIFFE.

LIFFE is now part of ICE, the aggressive US exchange that also owns the New York Stock Exchange, presenting Deutsche Boerse and LSE as standalone entities with strong, transatlantic competition.

Since their failed merger in May 2000, neither the LSE nor Deutsche Boerse has been able to pull off a deal that transforms them into the dominant European bourse. (Reuters)

Irish Independent

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