Brussels kills off LSE-Deutsche Boerse merger

A worker shelters from the rain as he passes the London Stock Exchange in the City of London, Britain
A worker shelters from the rain as he passes the London Stock Exchange in the City of London, Britain

The European Commission has blocked the £24bn tie-up of the London Stock Exchange and Deutsche Boerse, killing off a merger it said would create a "de facto monopoly in the markets for clearing fixed income instruments". 

Plans to create Europe’s largest exchanges operator were finally squashed by Brussels on Wednesday, with EU Commissioner Margrethe Vestager saying that the tie-up "would have significantly reduced competition" in the "crucial area" of fixed income clearing. 

"As the parties failed to offer the remedies required to address our competition concerns, the Commission has decided to prohibit the merger," she said. 

The decision, which ends the pair's third formal attempt at a merger since 2000, will also mean that the proposed sale of LSE's French clearing house LCH Group to Euronext - a deal agreed to appease competition concerns - will no longer go ahead. 

Both sides released statements on Wednesday morning saying that they regretted the decision but were confident in their prospects as standalone businesses.  

This outcome had been widely expected, with the LSE admitting last month that its refusal to sell its Italian bond trading platform MTS to appease competition concerns now meant the deal was unlikely to receive approval. 

Its decision to keep MTS came months after bosses on both sides of the deal made a promise to Italian finance minister Pier Carlo Padoan that they would "retain" and "nurture" the platform, sources told The Sunday Telegraph

EU regulators blocked the tie-up on the same day that the UK triggered its divorce proceedings from the EU. The referendum result was widely seen as the death knell for what was already a politically sensitive merger. 

The terms of the deal - first agreed in March 2016 - were penned just weeks before the EU referendum. The agreement was that LSE chief Xavier Rolet would stand down and leave Deutsche Boerse boss Carsten Kengeter in charge as long as the enlarged entity would be domiciled, taxed and headquartered in London. 

The concern among German politicians was that Deutsche Boerse, the larger of the two exchanges, could lose its influence if the merged company was London based. 

"Brexit effectively killed this deal off nine months ago so it’s fitting that EU competition commissioner Margrethe Vestager delivered the coup de grace just a couple of hours before the UK triggers Article 50," said ETX Capital analyst Neil Wilson.

"It brings to an end a fairly dubious history of proposed mergers for LSE at the same time. Its future looks to be, like Britain’s, outside of Europe." 

LSE shareholders told The Sunday Telegraph last week that if the deal fell apart, there would be no need for a board shake-up at the exchange. Investors backed Mr Rolet to stay in the top job even though he was due to leave as part of the deal.

However John Colley, a professor of practice at Warwick Business School, said that Mr Rolet's willingness to stand down hinted at a reduced appetite for the top job. He added that LSE was now vulnerable to bids from US exchanges. 

Mr Rolet, who said last year that a pairing with Deutsche Boerse was “the best deal on the table", hinted that he would be interested in further mergers during a results call in early March. He added that he did not think that the group’s M&A ambitions had been dented in Europe following recent discussions with the European Commission. 

Shares in the LSE rose 3pc on Wednesday morning. 

License this content