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LSE – Deutsche Boerse Merger Deal Unlikely To Succeed

The €29-billion (£24.5 billion) merger of the London Stock Exchange (LSE) and Deutsche Boerse is on the brink of falling through after the LSE stated that it would not meet a last-minute European Commission (EC) demand.

The EC had asked the LSE earlier this month to sell its 60 percent stake in an Italian fixed-income trading clearing house MTS as a pre-condition to approving the merger. The MTS is a key platform for trading in Italian government bonds.

The LSE rejected the demand calling it disproportionate and warned investors that this decision is likely to bring the merger bid to an end.

According to a statement made by the LSE, the sale of its MTS stake would hurt its Italian business adding that it would need approval from several European authorities. The LSE had agreed to an earlier EC requirement to sell off its stake in the French clearing house LCH.

Bloomberg

The merger of equals between LSE and Deutsche Boerse has been under discussion for over a year but the British vote for Brexit last year in particular put it in jeopardy. This is the third attempt by the two stock exchanges to merge, with the both earlier bids in 2000 and 2005 failing.

The merger intends to create a European behemoth that would be in a better position to counter competition from U.S and Asian clearing houses. Under the terms of the deal,

Deutsche Boerse would hold 54 percent of the merged entity and its headquarters would be located in London. Both these terms have caused concern among politicians in the UK and Europe.

In a statement, Bill Cash, who is a Eurosceptic Conservative MP said,

It was inconceivable that after Brexit, having left the European Union, that our stock exchange would have been effectively run from Germany

Apart from this, the ongoing investigation into Deutsche Boerse chief executive Carsten Kengeter for insider trading has caused additional concern. He had bought Deutsche Boerse shares right before the merger announcement was made last year. The EC is expected to make a decision on April 3 on the issue. Deutsche Boerse stated that both parties would await the EC’s decision

According to market analysts, the failure of the merger is like to benefit British Prime Minister Theresa May who had been asked to step into the matter. With the latest merger bid also collapsing, industry observers expect the LSE to soon fall into the hands of an American rival, like the Atlanta-based clearing house – the Intercontinental Exchange.


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