Deutsche Boerse-LSE merger at risk over EU demands

The London Stock Exchange has refused to give in to demands from European regulators to sell one of its holdings as a condition for its tie-up with Deutsche Boerse. But LSE says it still believes in the logic of the transaction and has not given up a
The London Stock Exchange has refused to give in to demands from European regulators to sell one of its holdings as a condition for its tie-up with Deutsche Boerse. But LSE says it still believes in the logic of the transaction and has not given up all hope of a deal being approved.PHOTO: REUTERS

LONDON • The US$13 billion (S$18 billion) bid by Deutsche Boerse to acquire London Stock Exchange Group appears on the verge of collapse after LSE refused to give in to demands from European regulators to sell one of its holdings.

EU officials earlier this month requested a divestment that was one step too far for LSE - that of MTS, an electronic trading platform for European government bonds.

LSE on Sunday said it could not commit to sell its stake and would not submit a remedy proposal.

Deutsche Boerse shares fell as much as 3.1 per cent yesterday, while LSE's stock price dropped as much as 2.6 per cent.

"Based on the commission's position, LSEG believes the commission is unlikely to provide clearance for the merger," LSE said.

The two announced the proposed deal months before last year's vote by Britain to leave the European Union, when approval in Brussels was seen as the biggest hurdle.

The Brexit vote has complicated matters, with German officials steadily voicing opposition to the plan to base the holding company in London, and UK lawmakers complaining the tie-up would weaker their negotiating position.

Deutsche Boerse on Sunday said it was still waiting for European regulators to make a final decision.

Traders put odds of the merger going through at less than 50 per cent.

"Never say never," said Mr Thomas Caldwell, CEO of Caldwell Securities, a money management firm in Toronto. "If something makes good business sense... exchange executives will find a way. This was an anomalous event. You had the Brexit vote, it surprised everybody, and we're in the post-trauma phase."

The two operators have been down this road before, with Deutsche Boerse previously failing in an attempt to buy LSE, a market operator with roots going back more than 300 years.

Given past failures, it is an open question whether European exchange operators will be able to consolidate in a way that gives them the stature of large firms in the US and Asia. Their ambition has been to create Europe's dominant operator in everything from indexes to bourses and clearing, with businesses in more than 30 countries.

It would potentially be the most profitable company in its industry.

LSE on Sunday said it still believes in the logic of the transaction and has not given up all hope of a deal being approved.

Regulators are due to rule on the takeover by April 3, but Deutsche Boerse said in a statement that it expects a decision by the end of next month.

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A version of this article appeared in the print edition of The Straits Times on February 28, 2017, with the headline 'Deutsche Boerse-LSE merger at risk over EU demands'. Print Edition | Subscribe