DEUTSCHE BÖRSE Third Time’s Not a Charm For London and Frankfurt

After three failed attempts to merge with the London Stock Exchange, Deutsche Börse needs to rethink its strategic orientation, says Handelsblatt correspondent Daniel Schäfer.
The merger between the LSE and Deutsche Börse faces stormy weather.

The word fail isn’t in Carsten Kengeter’s vocabulary. At least that’s what the chief executive of Deutsche Börse told Handelsblatt in a June interview.

After the events of the past weekend, however, Mr. Kengeter will have to update his vocabulary, because his efforts to pull off a blockbuster €29-billion ($31 billion) merger with the London Stock Exchange (LSE) are just that – a failure.

The deal was ultimately torpedoed by the British side’s refusal to accept a dual headquarters in London and Frankfurt. LSE chief Xavier Rolet found the proposal, first floated by Deutsche Börse months ago, unacceptable. Mr. Rolet didn’t want to look like he was weakening the City of London.

Mr. Kengeter was right, then, to pursue the merger, but he underestimated the political dimension.

In the wake of Britain’s vote to leave the European Union, Prime Minister Theresa May’s conservative government, faced with a flood of bad news about major financial institutions shifting personnel to the continent, had also upped the pressure on LSE to maintain its sole seat in London.

This position is difficult to understand because the merger would have created a European champion that’s able to compete with the mega exchanges in Asia and the United States. And in a period in which the financial industry faces fragmentation and de-globalization, it would have sent the right signal.

Mr. Kengeter was right, then, to pursue the merger, but he underestimated the political dimension. The cosmopolitan chief executive cleared the dual headquarters proposal with Berlin, but he failed to do the same with the regional government in Hesse, where Frankfurt is located.

It should have been clear to all of the participants involved that the state government in Hesse had no interest in agreeing to a seat for Deutsche Börse outside of Frankfurt, particularly after the Brexit vote.

Given all the advantages of a merger, it’s regrettable that the deal will fail again, but it’s not dramatic - neither for Deutsche Börse nor Mr. Kengeter. There’s little reason for the exchange to replace him as chief executive – unless the state prosecutor turns up concrete evidence that he engaged in insider trading as alleged.

Failure may not be in Mr. Kengeter’s vocabulary, but he should acquaint himself with the word. In the business world, after all, failure is normally a detour – not a dead end.

In this case, Deutsche Börse and Mr. Kengeter now have the opportunity to implement a strategic reorientation and focus on mid-sized acquisitions and new technology instead of headline grabbing, blockbuster deals.


Daniel Schäfer is head of Handelsblatt's finance pages and based in Frankfurt. To contact the author: [email protected]