LSE merger Börse Boss Wary of Exchange Merger

The London Stock Exchange and the Deutsche Börse announced their merger plans in February. But the boss of the Frankfurt exchange is now warning that the fusion is far from a done deal, with U.S. rivals still lurking in the background.
The Deutsche Börse could yet see its merger deal fail.

Germany’s largest stock exchange, the Deutsche Börse in Frankfurt, has been beating the drum for its planned fusion with the London Stock Exchange since the two announced their plans in February. But at the same time it is warning that its bigger U.S. rival, the Intercontinental Exchange (ICE), could still stand in the way of the merger.

Although the ICE had said it won’t take any action until the beginning of November, Carsten Kengeter, the boss of Deutsche Börse, said Monday evening in Frankfurt that “it stands to reason that the ICE will take a look at the progress of the project.” Mr. Kengeter assumes that the U.S. firm will take whatever action it takes dependent on the future course of the merger plans.

The Deutsche Börse and the LSE want to form a European super stock market to rival the ICE and other big U.S. stock market operators. But after confirming merger talks in the middle of February, the ICE revealed that it was considering a counter offer for the LSE. It later shelved the plans.

The merger plans have met with particular skepticism in Frankfurt as the super stock exchange would have its headquartered and legal seat in London.

However, if the ICE should renew its approach in November, it could still possibly torpedo the London/Frankfurt merger. Mr. Kengeter, meanwhile, doesn’t expect the fusion to get the green light before the first quarter of 2017.

Before that happens, German and British financial regulators must examine the merger plans. After that, the owners of the stock exchanges must turn their existing shares over to a mutual holding company. Once the shareholders agree on the deal, it must pass to a number of public authorities for approval.

The merger plans have met with particular skepticism in Frankfurt as the super stock exchange would have its headquartered and legal seat in London. Critics also point to the U.K.’s referendum on leaving the European Union later this month as a concern. But the outcome of the vote will not alter the fabric of the fusion, Mr. Kengeter stressed.

However, the head of the Deutsche Börse did warn that its parent group could become a target for a takeover should the merger fail, noting that the Chicago Mercantile Exchange also has a general interest in an acquisition. “I don't really think this will crystallize at the moment, but they could articulate it if our merger is unsuccessful.” According to market capitalization, the CME and the ICE are the two largest operators of stock exchanges in the world.

The fusion plans are also being closely followed in France. The governor of the Bank of France, François Villeroy de Galhau, sees risks for financial stability. But Mr. Kengeter rejects them. “Paris would celebrate if our project were to fail,” he said in Frankfurt.

 

Elisabeth Atzler is Handelsblatt's banking correspondent. To contact the author: [email protected]