The London Stock Exchange Group (LSE) and Deutsche Boerse are making their third attempt at a merger in two decades, in a bid to create a dominant European exchange operator worth more than £20bn.
LSE confirmed that it was in merger talks with Deutsche Boerse yesterday afternoon, after reports of a possible deal sent the London exchange’s share price soaring. The two exchange operators said in a joint statement that they are “in detailed discussions about a potential merger of equals of the two businesses” and “expect to provide a further update in due course”.
“The boards believe that the potential merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group.”
Analysts at Edison said a successful merger would “create a European champion in the market infrastructure and capital markets business to rival the two large US firms and the Hong Kong Exchange in terms of market capitalisation”.
Read more: The big names behind the deal
LSE shares jumped by more than 20 per cent on the news, before closing the trading day at 2,630p per share, up 13.7 per cent.
Deutsche Boerse shares rose nearly eight per cent, before closing at €78.80 per share, up 3.22 per cent. Shares in other European exchange operators, including Euronext and Spanish exchange operator BME also rose amid reports of the possible merger.
23 February 2016 @ 4:30pmLondon Stock Exchange Group (LSE)
This is not the first time the London and Frankfurt exchanges have attempted to join forces. The first proposed merger was foiled in 2000, when Sweden’s OM Exchange made a £808m hostile takeover bid for the LSE – an offer that was rejected. Four years later, a full takeover bid by Deutsche Boerse fell through after the Frankfurt exchange’s shareholders rejected it. Investors speculated, however, that the two would give it another go.
LSE chief executive Xavier Rolet raised deal expectations last April when he said he expected the LSE to strike a deal with one of the “big four” Western exchanges by the end of 2016. “Market infrastructure is still a bit of a cottage industry. It is ripe for change,” Rolet said. “When there is an industry with competitive tension, consolidation tends to be not too far behind.”
Read more: A timeline of LSE's deals
LSE has made many of its own acquisitions in recent years, including the Italian exchange Borsa Italiana in 2007 for more than £1.1bn. Deutsche Boerse’s new chief executive, Carsten Kengeter, meanwhile, said upon taking over at the exchange last June that he had an “open mind” when it came to large acquisitions.
If completed, the deal will consist of an all-share merger under a new holding company that would give Deutsche Boerse shareholders a 54.4 percent stake and LSE shareholders 45.6 percent. The combined group would have a single board with equal representation from LSE and Deutsche Boerse directors.
It remains unclear what role Rolet and Kengeter would have in the newly-merged firm, or what the implications might be for George Osborne’s plans to connect the LSE with the Shanghai Stock Exchange.