London Stock Exchange to save €450m in merger with Deutsche Börse

Deal between UK and German bourses opens door to rival bids from Americans

Nick Goodway
Thursday 17 March 2016 00:07 GMT
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Last month, EU regulators blocked a £25bn merger between LSE and Deutsche Boerse
Last month, EU regulators blocked a £25bn merger between LSE and Deutsche Boerse

London Stock Exchange has agreed its £21.6bn merger with Deutsche Börse, saying the combination would create the largest financial exchange business in the world, able to counter US rivals which could still try to break up their party.

Xavier Rolet, the chief executive of the LSE who will leave after a year, said: “This is a merger of equals between two very strong businesses.” Carsten Kengeter, his counterpart at Deutsche Börse who will head the merged firm, said: “We share a strategic vision which will deliver more than the sum of the parts to our stakeholders.”

The companies said they had identified €450m of savings through merging. Mr Rolet admitted this would probably mean job cuts and, although he would not say how many, said they would “be balanced between London and Frankfurt”.

The deal, three weeks after news of the talks first emerged, opens the door to potential rival bids from America’s Intercontinental Exchange (ICE) and Chicago Mercantile Exchange (CME). Mr Rolet said he had not heard from either of them. ICE has a put or shut up deadline of 29 March to launch a rival bid.

Xavier Rolet: CEO of the London Stock Exchange

The structure of the deal is unchanged, with LSE shareholders owning 45.6 per cent of the as yet unnamed new group and Deutsche Börse with 54.4 per cent. But Mr Rolet denied this meant the Germans would dominate.

“The new company will be a UK plc headquartered in London and will pay tax in this country,” he said. “The biggest group of shareholders in both companies are American and British investors own 20 per cent of Deutsche Börse while Germans only own 15 per cent.”

The LSE’s Donald Brydon will chair the merged business with Deutsche’s Joachim Faber as his deputy and Mr Kengeter as chief executive. The LSE’s David Warren will be finance director and each side will put up a further six non-executive directors.

Deutsche has tried to buy the LSE twice (in 2000 and 2005) and could still face major competition issues, with the deal unlikely to be sealed until late this year or early in 2017. Together the two businesses had income of £3.4bn last year against ICE’s £3.1bn, Nasdaq’s £2.2bn and CME’s £2.2bn.

Mr Kengeter said that a vote by the UK to leave the EU would not alter the terms of the merger but he said they had already set up a committee “to respond to any regulatory or legal changes needed to accommodate a leave vote”. “This combination enables Europe to maintain and enhance its position in global capital markets in the long term,” he said.

“I always wanted the LSE to end up in a safe, globally relevant place,” Mr Rolet said. “If the price of that for me was to bow out so be it.” The Frenchman added that after 27 years in London he “very much hopes” to stay in the UK.

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