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FRANKFURT/LONDON – Deutsche Boerse AG and London Stock Exchange Group Plc (LSE) agreed to combine inside a US$30-billion deal to produce a European trading powerhouse able to better compete with U.S. rivals encroaching on their turf.
But the offer, which marks a third attempt to link the Frankfurt and London exchanges, may prompt antique dealer war after New York Stock Exchange owner Intercontinental Exchange said hello may make a deal for the British group.
Nearly 16 years after Deutsche Boerse first attempted to dominate LSE, the London and Frankfurt exchanges said last month these were discussing an all-share merger, that they confirmed on Wednesday would give Deutsche Boerse shareholders 54.4 percent and LSE shareholders 45.6 per cent of a new company.
In a combined statement the exchanges sought to sell the deal, that they described as “reasonably limited free merger of equals,” for their investors using the lure of potential annual financial savings of 450 million euros (US$500 million).
They also promised their users – the banks and fund managers who pay fees to trade and companies who pay to be listed – “substantial benefits,” although they gave no figures.
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And inside a clear effort to make an impression on Europe’s politicians to the advantages of a dominant pan-European exchange, Deutsche Boerse Chief Executive Carsten Kengeter said hello would enable Europe to boost its capital markets.
This chimes with Eu intends to set up a “Capital Markets Union” to bolster the region’s financial markets to compete better using the United States and Asia.
Despite these incentives, the deal faces questions regarding what goes on if Britain votes to depart the European Union inside a referendum in June and whether regulators will give the nod towards the development of a huge presence in derivatives clearing.
Kengeter said the time was right for a merger which will combine the LSE’s share-trading operation with the derivatives trading of Deutsche Boerse’s Eurex.
“We strongly believe this is actually the right transaction in the proper time for our two companies,” Kengeter told reporters, adding that he expects the deal to shut by the end of 2016 or in early 2017 after a very broad regulatory review.
BALANCE OF POWER
Kengeter shrugged off concerns within the impact of Britain, Europe’s biggest financial center, voting to depart the EU.
“We will be having a successful transaction regardless of the Brexit outcome,” he explained.
In further efforts to help keep all parties happy, the exchanges confirmed a balance of power between Britain and Germany within the combined group, with LSE Chairman Donald Brydon becoming chairman of the new company, while Kengeter would be CEO.
The combined companies’ board would be comprised of equal amounts of LSE and Deutsche Boerse directors.
The new firm, which will be domiciled in Britain, having a primary listing in the blue-chip FTSE 100, can also get a home around the Frankfurt Stock Exchange and also have corporate headquarters in both cities.
LSE Chief Executive Xavier Rolet, who’ll retire when the deal goes ahead, sought to help ease concerns that large swathes from it operations would shift from London to Frankfurt, saying there’d be considered a “balanced” distribution between the two.
Industry analysts say the combined group could face challenges from the EU’s competition regulator over its huge presence in derivatives clearing.
Kengeter said he expected a thorough review by regulators and talks have already begun with them.
“We’re feeling confident about the process,” Kengeter said.
LSE Group, which was created in 2007 when London Stock Exchange merged with Milan stock exchange Borsa Italiana, said its shareholders would receive a dividend of 25.2 pence per LSEG share for the 6 month period ended Dec. 31.
? Thomson Reuters 2016
