Third Time Lucky? The London Stock Exchange and the Deutsche Börse Look Set to Join Forces

 

In the heady financial atmosphere of the new millennium, two of the most prominent financial institutions in Europe attempted to come together. An agreement between the London Stock Exchange and the Deutsche Börse was actually was actually made before being scuppered by a Swedish bid for the LSE, which ironically ended up not going ahead. In 2005, Deutsche Börse tried again, only to see its £1.3 billion offer get shot down by the LSE. But now, more than a decade later, is a successful merger finally on the cards?

The structure of the deal, if it goes ahead, will see the German stock exchange buy the English one via a new company called UK TopCo, with shares split approximately 55:45 between shareholders of Deutsche Börse and those of the London Stock Exchange. The company will be listed in both London and Frankfurt, but before UK citizens start muttering darkly about offshore companies and tax-dodging – relax! It has been announced that UK TopCo will be paying council tax in England. Both exchanges have announced that they are looking to cut costs by around €450 million (£354 million) a year as a result of the merger. Priced at between £20-£21 billion, the merger would see the new combined LSE/ Deutsche Börse become the second largest exchange operator in terms of market value (only the CME group would be higher), but the largest in terms of revenue. 

One thing that overshadows the potential merger, however, is the possibility of the UK voting to leave the EU in just a few months’ time. Such a move could potentially throw a spoke into the workings of this proposed merger deal – given that this is the case, is it really the best time to be orchestrating a merger deal between UK and German stock exchanges?

However, it appears as if the exchanges are prepared to go ahead – even in the face of such uncertainty. After all, there is a fair chance that Britain will vote to ‘remain’ in the EU, but even if it votes to leave, it’s not certain how long the leaving process will take, or how exactly any such leading procedure would be undertaken or orchestrated. That being the case, the merger might as well be pushed ahead with – the companies have set up a committee to consider how to deal with a possible ‘Brexit’.

But will it go ahead without a third party intervening? Certain rumblings suggest that the International Exchange, owner of the NYSE, may be weighing up a bid, with the Chicago Mercantile Exchange Group also showing an interest. There’s still time for a rival bid, and we’ll have to see for this attempted merger, it’s a case of third time lucky – or falling at the final hurdle.