Deutsche Börse and the London Stock Exchange have agreed on details to merge in an-all share transaction, creating a trading platform valued at $30.6 billion.
The “merger of equals”, as the two companies called it on Wednesday, would be Deutsche Börse’s third attempt to buy or merge with LSE, following two failed attempts in 2000 and 2004. The two firms announced they were in new merger talks last month.
The deal, however, could be scuppered by U.S. rivals. Two weeks ago, Atlanta-based Intercontinental Exchange said it might make a counteroffer for LSE, while Bloomberg reported that the Chicago Mercantile Exchange was also considering a hostile bid.
"I haven’t heard how they want to respond if there were a counteroffer for LSE," Dieter Hein, an analyst at research firm Fairesearch located near Frankfurt, told Handelsblatt Global Edition.
Deutsche Börse’s chief executive Carsten Kengeter will lead the new company, which will be headquartered in London. Mr. Kengeter, a former UBS and Goldman Sachs investment banker, is keen on taking the number 1 or 2 position in the markets it operates in and earlier this month warned of the risk of becoming smaller compared with other rivals.
“As a combined group we will create a European player that will compete on a global basis,” Mr. Kengeter said in a statement on Wednesday.
The merger could still fall apart because of several reasons. Dieter Hein, Analyst, Fairesearch
As the LSE owns the Borsa Italiana in Milan, the deal would merge the stock exchanges in London, Frankfurt and Milan, combining platforms to trade derivatives, bonds, currencies and energy products as well as clearing and settlement operations in Europe. The new company would make about 75 percent of sales in Europe, 19 percent from North America and 6 percent from the rest of the world, mainly China.
But analyst Mr. Hein pointed out that an unanswered question hangs over the merger in the form of Britain's referendum on E.U. membership in June. During a conference call today, Mr. Kengeter said: "We will be having a successful transaction irrespective of the Brexit outcome."
In addition to a possible counteroffer and Brexit, two other issues could block the deal. “On the one hand, shareholders need to approve the deal. On the other hand, regulators have to give their approval. The merger could still fall apart because of several reasons,” Mr. Hein said.
Deutsche Börse’s fear of being taken over itself may be among the main reasons the stock exchange operator was in a hurry to seal the merger, financial sector sources in Frankfurt told Handelsblatt last week.
The German firm, based in the Frankfurt suburb of Eschborn, has legitimate concerns that a potential takeover attempt could still be launched, for instance by the Chicago Mercantile Exchange, which is the world’s largest exchange operator. In 2012, Deutsche Börse received an exploratory call from Chicago, but a deal never panned out.
The tie-up of the two European exchanges has met with criticism by some in Germany, fearing it might lead to a loss of Frankfurt’s standing as a financial centre and loss of control for Deutsche Börse shareholders. Under the terms of the deal, they will own 54.4 percent of the new merged company while LSE shareholders will own the remaining 45.6 percent.
The two companies expect annual cost synergies of €450 million, or $499 million, in the third year following the merger, Deutsche Börse said.
Shares of Deutsche Börse rose 0.9 percent to €76.40, slightly outperforming a 0.6 percent rise of the German blue-chip DAX Index. London Stock Exchange's shares dropped 0.6 percent to 28.97 pounds, or $40.87, while London's FTSE 100-index was unchanged.
Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the author: [email protected]