Why are Germany's and Britain's stock exchanges merging?
Two of the world鈥檚 largest stock exchanges agreed to a deal that will combine the two markets into a聽鈥溾�� with an increased capacity to contend for global stock listings.
The London Stock Exchange Group plc (LSE) and Deutsche B枚rse AG of Germany plan to within the fiscal year, according to an LSE release. The merger will establish a new holding company headquartered in the United Kingdom, UK TopCo,聽while maintaining the regulatory frameworks of London鈥檚 LSE and Frankfurt鈥檚 Deutsche B枚rse.
鈥淲e are creating an industry-defining combination which will be a leading global market infrastructure business, very well positioned to create new benefits and efficiencies for our customers and increase value for our shareholders,鈥� LSE CEO Xavier Rolet said. 鈥淥ur highly complementary businesses will accelerate growth鈥� We will create a European leader in global markets infrastructure.鈥�
鈥淪trengthening the link between the two leading financial cities of Europe鈥� will strengthen European capital markets. It is the logical evolution for our companies in a fundamentally changing industry,鈥� said Deutsche B枚rse CEO Carsten Kengeter.
The move that will join the world鈥檚 third- and tenth-largest exchanges by market capitalization is designed to advance both sides鈥� growth and enhance their presence on the global market. The $30 billion deal will see UK TopCo take control of hundreds of billions of dollars in gross assets from LSE and Deutsche B枚rse.
Assuming acceptance of the move, shareholders with the German exchange will control 54.4 percent of UK TopCo, while LSE shareholders will own 45.6 percent of the new entity.聽LSE investors would also be entitled to 0.4421 UK TopCo stocks for every one of the London company's, while聽Deutsche B枚rse shareholders would receive a one to one stock exchange rate.
The merger marks the first success out of three attempts at a consolidation between Deutsche B枚rse and LSE; in 2000 the groups with the European Union (EU)鈥檚 Euronext exchange by merging, but a Swedish exchange鈥檚 bid for LSE put that merger on hold. And while Deutsche B枚rse came back in 2004 with an LSE takeover offer, the move was denied by the London group early in 2005. Since then, LSE has also rejected acquisition offers from NASDAQ while merging with Milan鈥檚 Borsa Italiana SpA in 2007. Deutsche B枚rse missed out on a Euronext merger in 2006.
鈥淲e strongly believe this is the right transaction at the right time for our two companies,鈥� Mr. Kengeter said to Reuters. Kengeter will become the chief executive of UK TopCo once the deal goes through, while LSE Chairman Donald Brydon is set become UK TopCo鈥檚 chairman and Mr. Rolet will step down to become Mr. Brydon's adviser. Both LSE and Deutsche B枚rse will have equal representation on the TopCo board of directors, balancing company control between Frankfurt and London interests.
The deal鈥檚 proposed timeline could run alongside a possible British withdrawal from the EU, a political maneuver that will be voted on this June in the UK. Acknowledging that potential shift, LSE and Deutsche B枚rse established a committee to address the ramifications on UK TopCo should a 鈥淏rexit鈥� occur, but the exchanges鈥� leaders do not believe such a move would end up affecting the combined group.
鈥淲e will be having a successful transaction irrespective of the Brexit outcome,鈥� Kengeter said.
The merger must still receive competition clearance from regulators of other large global market authorities in the United States, Russia, and EU, and must undergo 鈥渇ormal regulatory approval鈥� in several European countries and the US. Despite those pending measures, Kengeter is confident the deal will be set within by first quarter 2017, per the combined group鈥檚 plans.
鈥淲e feel confident about the process,鈥� he said to Reuters.
