+++ P.O. (Times) LSE-Deutsche Borse: How mega-merger came apart at last minute

P.O.

This deal is not crumbling, it’s dead and buried!

Actually it was always dead before it was even born.

Having been part of the two previous consolidation attempts, I think I have an idea on what I am talking about…

Please see my +++ P.O. (EurActiv) EU set to block stock market mega merger
and the links to my three P.O. on this issue.

Francisco (Abouaf) de Curiel Marques Pereira

(Times) Stock exchange deal has cost millions in fees but all the work may be in vain.

If the merger with Deutsche Börse collapses it will mean that a year of neg­otiations and hundreds of millions of pounds of advisory fees will come to naughtMICHAEL GOTTSCHALK/GETTY IMAGES
 

It is hard to believe that less than three weeks ago the London Stock Exchange and Deutsche Börse were gushing about their “constructive engagement” with the European Commission.

The two exchanges, which had hoped to become a dominant global bourse by joining forces in a £24 billion “mega-merger of equals”, said last month that they had made several commitments to Europe’s competition authority that were about to be market tested. It appeared that all was on track.

Now, however, the merger seems dead in the water amid allegations of European politicking by France, Germany and Italy. An 11th-hour request by the European Commission that the LSE sell its majority stake in MTS, a “systemically important” Italian business that is a leading platform for trading European wholesale government bonds, has virtually scuppered the deal.

Thoughts that America’s Intercontinental Exchange, which owns the New York Stock Exchange, would bid for the LSE were largely dismissed yesterday because of the political environment and the seemingly protectionist sentiment of the British government.

If the merger with Deutsche Börse collapses it will mean that a year of negotiations and hundreds of millions of pounds of advisory fees will come to naught and be a blow for Xavier Rolet, LSE chief executive, whose support for the deal has bordered on evangelical.

One adviser to the LSE said the commission’s MTS request had not been brought up until recently and said: “This came as a complete shock. It was an unexpected request and we tried hard to get to the bottom of what the areas of concern were. We presented what we believed was an improved and clear-cut structural remedy, which the board [of the LSE] felt very strongly would address their concerns but the commission just wasn’t engaged.”

The LSE has said that it would not sell its MTS stake as it would be detrimental to its business in Italy and trigger other regulatory investigations that may hurt “critically important relationships”. It seems all but certain that the merger will not gain clearance.

Before the commission’s death knell there were signs that the deal was faltering amid heightened political concerns over Brexit and increased tension between the LSE and Deutsche Börse.

Last month the stakes were raised by Deutsche Börse’s bungled publication of a report highlighting the gains that Frankfurt, Germany’s financial centre, could make at the City’s expense from the merger. The LSE said that it would not move jobs to Germany.

There are fears that post Brexit there would be no sense in the LSE being junior partner in a merger where Deutsche Börse would control 54 per cent of the business. Mr Rolet, who had planned to leave after the merger, even warned that it would cost London 100,000 jobs if it lost its euro clearing business.

Opposition has been mounting in Germany to Britain hosting the Deutsche Börse headquarters. Some believe that a police raid of Deutsche Börse’s headquarters as part of an investigation into allegations that Carsten Kengeter, its chief executive, took part in €4.5 million of insider dealing in December 2015, just before the LSE deal was announced, was politically motivated.

Shares in the LSE, which has been advised by banks from Goldman Sachs to Barclays, were about £23 before news of the tie-up leaked last February and yesterday closed at £30.90.