FRANKFURT/LONDON – Deutsche Boerse AG and London Stock Exchange Group Plc (LSE) agreed to combine inside a US$30-billion deal to create a European trading powerhouse better able to compete with U.S. rivals encroaching on their own turf.
But the offer, which marks another make an effort to link the Frankfurt and London exchanges, may prompt a bidding war after New York Stock Exchange owner Intercontinental Exchange said hello could make a deal for that British group.
Nearly 16 years after Deutsche Boerse first tried to take over 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 per cent and LSE shareholders 45.6 per cent of a new company.
In a combined statement the exchanges sought to market the offer, that they referred to as “a premium free merger of equals,” for their investors with the lure of potential annual cost savings of 450 million euros (US$500 million).
They also promised their users – banks and fund managers who pay fees to trade and firms who pay to become listed – “substantial benefits,” although they gave no figures.
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And in a clear effort to make an impression on Europe’s politicians towards the benefits of a dominant pan-European exchange, Deutsche Boerse Chief Executive Carsten Kengeter said hello would enable Europe to enhance its capital markets.
This chimes with Eu intends to set up a “Capital Markets Union” to boost the region’s financial markets to compete better with the United States and Asia.
Despite these incentives, the offer faces questions about what goes on if Britain votes to leave the European Union in a referendum in June and whether regulators will give the nod towards the development of an enormous presence in derivatives clearing.
Kengeter said the time was suitable for a merger which will combine the LSE’s share-trading operation using the derivatives trading of Deutsche Boerse’s Eurex.
“We strongly believe this is the right transaction in the proper time for our two companies,” Kengeter told reporters, adding he expects the offer to shut after 2016 or perhaps 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 are having a successful transaction irrespective of the Brexit outcome,” he said.
In further efforts to 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 from the new company, while Kengeter would be CEO.
The combined companies’ board would be made up of equal amounts of LSE and Deutsche Boerse directors.
The new firm, which is domiciled in Britain, having a primary listing within the blue-chip FTSE 100, can also get a house around the Frankfurt Stock Exchange and also have corporate headquarters both in cities.
LSE Chief Executive Xavier Rolet, who will retire when the deal goes ahead, sought to ease concerns that large swathes of IT operations would shift from London to Frankfurt, saying there would be 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 previously begun with them.
“We’re feeling confident about the process,” Kengeter said.
LSE Group, that was made in 2007 when London Stock market merged with Milan stock market Borsa Italiana, said its shareholders would get a dividend of 25.2 pence per LSEG share for that 6 month period ended Dec. 31.
? Thomson Reuters 2016
