A MATCH MADE IN HEAVEN?
Stock exchange consolidation is back in vogue with the London Stock Exchange Group (LSEG) and Deutsche Börse unveiling their deal of two equals in a move that they hope will fight off have any gatecrashers and persuade regulators to bless the union.
If successful, the £21bn deal will create one of the world’s largest exchanges operators, trading more than E5.2tn in equities and over 3,200 companies listed on its markets.
In addition, it would form a regional rival in derivatives trading to take on the world’s largest markets operators, CME Group and Intercontinental Exchange (ICE) of the US and Hong Kong Exchanges and Clearing Limited (HKEX). Cost savings are estimated at E450m a year, in addition to any savings that had already been planned by the groups.
Carsten Kengeter, chief executive of the German exchange said the transaction was the best chance of Europe’s bourses competing on the world stage.
“If this merger does not take place, the European capital market architecture will probably soon be in American hands. And one does not need to be the CEO of the Deutsche Börse to shudder at that thought,” he told the German media.
“The clock is ticking in Europe, not just for the LSE but also for us. If we do not strengthen ourselves quickly, then the company will eventually be so weak that it can no longer act, but only react.”
The big question looming is whether ICE, which owns the New York Stock Exchange, will formally enter the fray. It signalled its intentions to bid for the LSEG in early March and now has more time to mull over its options.
The previous March 29 deadline to make an offer no longer stands now that the LSE and Deutsche Börse have made their merger official. ICE though may not be the only suitor as the CME and the Hong Kong Exchange are also considering their options.
This is not the first time that merger mania has swept over European shores. In 2000, the LSEG became the subject of a hostile takeover approach from Sweden’s OM Gruppen, forcing the company to abandon previous plans to merge with Deutsche Börse. Four years later, its German competitor returned with a £1.35bn offer, which was rejected by the LSE because it undervalued the company.
Although the two companies describe the tie-up as a merger of equals, Deutsche Börse is paying a takeover premium to the LSE.
Under the terms of the deal, LSE shareholders will receive 0.4421 shares in the combined group for every LSE share they own while Deutsche Börse shareholders will receive one share. This means that LSE shareholders would own 45.6% of the combined group while Deutsche Börse shareholders would hold 54.4%.
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