Merger talks could create giant European trading house

Deutsche Börse and the London Stock Exchange learn from past lessons in discussions over merger deal

The index board at Deutsche Börse. The group has recently engaged in talks with the LSE over a potential merger 

On February 23, it was revealed that Deutsche Börse and the London Stock Exchange (LSE) were discussing a potential merger. Reports confirmed that the union would be a “merger of equals”, and that both organisations would continue to operate under their existing brands.

Under the terms of the deal that have been disclosed so far, Deutsche Börse would own the majority share of 54.4 percent, while the LSE would hold the remaining 45.6 percent, in a combined company worth more than £21bn. This latest proposal marks the third attempt of Deutsche Börse and the LSE to join forces, the first being in 2000, followed by another endeavour in 2004.

According to Reuters, the two companies are taking lessons from past mistakes in order to ensure that the deal is completed this time around. So far, roadblocks from their respective governments have not appeared – however, approval from both domestic regulators and the EU Commission is still required.

It was also revealed that Deutsche Börse’s Chief Executive, Carsten Kengeter, and LSE Chairman Donald Brydon would both stay in their respective roles at the combined group. However, the LSE’s Chief Executive, Xavier Rolet, will step down if the deal is completed.

If there are to be any issues with the merger, it is likely that they will be in terms of anti-trust matters; particularly those relating to clearing, settlement data and market data. It is expected that the Commission’s anti-trust investigation will continue through to 2017, once it has been established whether the combined company would foreclose other competitors. The potential price increase of market data and trading fees has also been flagged up as a concern.

Nonetheless, investors have reacted positively to the news, with shares in the LSE surging by 17 percent following the announcement. As such, it would seem that many believe that it will be third time lucky for what may be Europe’s largest trading house in the not-too-distant future.