London Stock Exchange says third attempt at a tie-up is ‘highly unlikely’ given ‘disproportionate’ antitrust terms set by Brussels

A controversial £24bn tie-up between the London Stock Exchange and its German counterpart Deutsche Börse is on the brink of failure after a last-minute demand from Brussels appeared to scupper the year-long merger effort.

The LSE stunned the City by revealing it would not sell off part of its Italian business and warned that the defiant move meant the European commission was “unlikely to provide clearance for the merger”.

While neither the LSE or Deutsche Börse formally abandoned the tie up on Monday, there were expectations that the deal announced a year ago would not be able to proceed and would potentially open the door to offers from US exchanges. The commission would not comment before a deadline for delivering its formal verdict on 3 April.

Analysts at stockbroker Numis said: “We believe it is highly unlikely this deal will now complete.”

The deal has been controversial from the outset after it was announced just months before the EU referendum. It is the third attempt by the two major stock exchange operators to unite after efforts in 2000 and 2005 failed.

The vote for Brexit added grist to an already politically-charged backdrop. Deutsche Börse, which operates the Frankfurt Stock Exchange, will have a 54% stake in the enlarged business. This has caused alarm in the UK among eurosceptic MPs and some Brexit-backing business leaders, while the location of its headquarters in London caused concern in Germany.

Further question marks were raised over the deal after the LSE suddenly revealed late on Sunday it had been asked to sell its its 60% stake in MTS – a trading platform used to trade Italian government bonds – by midday on Monday.



It was the first the City had known about the demand – which was revealed after a compromise was rejected – which had been raised by the commission on 16 February after the LSE had agreed to offload the French arm of its clearing business to French rival Euronext to meet competition concerns. The latest request was disproportionate, the LSE said.

City analysts, though, said it might come as a relief for Theresa May who has faced calls to step in. May’s spokesman said on Monday that the fate of the merger was a commercial matter for the companies involved - although.

Monday’s news also raised the prospect that rival offers might emerge from US exchanges – led by the Atlanta-based Intercontinental Exchange – with which the enlarged entity was aiming to compete.

It leaves uncertainty for the management of the two exchanges. Xavier Rolet, the chief executive of the LSE, was due to leave under the terms of the deal and will face questions about his future when the exchange publishes its results on Friday.

Deutsche Börse chief executive Carsten Kengeter is being investigated over his dealings in Deutsche Börse shares before last year’s takeover announcement. Accusations of insider trading are “without foundation”, the German exchange has said.

Both sides – which have racked up more than £300m in fees from City bankers, lawyers and public relations advisers – insisted they were pressing on with the deal.



Eurosceptic Conservative MP Bill Cash, who last week held a parliamentary debate on the deal, told Reuters after the unexpected announcement: “It was inconceivable that after Brexit, having left the European Union, that our stock exchange would have been effectively run from Germany.”

Deutsche Börse chief probed over €4.5m share deals ahead of LSE merger talks Read more

John Colley, a professor at Warwick Business School, said: “If the LSE/Deutsche Börse merger had progressed, Theresa May would have been under some pressure for allowing the facilitation of trade migration to the EU.” It was, Colley said, May’s “second major stroke of luck in a week” after Kraft Heinz suddenly walked away from its bid for Unilever.

Shares in both companies fell on Monday, with LSE recovering partially from earlier losses to close 1.5% lower.



Deutsche Börse, which operates the Luxembourg-based clearing house Clearstream and the derivatives platform Eurex, said: “The parties will await the further assessment by the European commission and currently expect a decision by the European commission on the merger of Deutsche Börse and LSE by the end of March 2017.”



