Deutsche Börse and the London Stock Exchange Group have gambled on winning approval from Brussels for their €29 billion tie-up with only limited concessions, indicating the two are confident of overcoming antitrust concerns.
The narrow offer suggests the two exchanges are convinced the European Commission is ready to drop some of its most significant legal objections to the deal, including competition issues relating to the LSE's London clearing house.
In an encouraging development for the exchanges, the commission will ask rivals for their feedback on the main concession, to sell the Paris-based clearing unit LCH SA, a process that could pave the way to regulatory approval for the deal next month.
Clearance from Brussels is just one hurdle the exchanges need to clear in their attempt to create Europe’s largest exchanges operator. The deal has been complicated by the UK’s decision to leave the EU, with German regulators and politicians unhappy about the prospect of the merged group’s holding company being located outside the bloc.
The DB-LSE concession to the commission was submitted yesterday, the last day permitted in the merger approval process. It came just hours before the German group's supervisory board gave full backing to Carsten Kengeter, its chief executive, as German authorities probe his share dealings ahead of talks to merge with the LSE.
Supervisory board
The Frankfurt public prosecutor is looking at discussions between the leaders of Deutsche Börse and the LSE in July, August and December 2015.
The exchange’s supervisory board said it had reviewed its processes in 2015 internally and via external experts, and found no talks with the LSE had taken place. Mr Kengeter is set to lead the combined group.
Mr Kengeter bought the shares on the board’s request as part of a long-term executive incentive scheme in December 2015. He is barred from divesting them until 2019. The exchanges’ talks were publicly revealed in February 2016, when their share prices rose.
LCH SA clears derivatives, equities and repo trades, but not the interest rate derivatives central to the deal. That means its disposal would not directly address some points in the commission’s statement of objections relating to LCH.Clearnet in London.
But two people familiar with the talks suggested the exchanges had made headway in addressing some of the commission’s concerns.
Brussels is focusing on whether the exchanges’ remaining clearing houses, LCH’s UK unit and Eurex, could squeeze rivals out of derivatives clearing. The two sides argue the market is driven by the liquidity for trading the products, and not efficiencies in clearing.
The LSE already has a buyer for LCH SA, having agreed a €510 million deal with Euronext, its Paris-based rival, last month. The UK must also bless the merger. – Copyright The Financial Times Limited 2017
