German pressure on stock exchange merger intensifies after Brexit vote

William Turvill
Follow William
DAX Breaks 10,000 Mark
The London Stock Exchange and Deutsche Boerse agreed a £21bn merger in March (Source: Getty)

Opposition to the London Stock Exchange’s (LSE) merger with Deutsche Boerse is intensifying in Germany after last week’s Brexit vote.

The head of the country’s financial market regulator Bafin said today that the merged company’s headquarters could not be based in London after the UK voted to leave the EU.

“Without doubt… it is hard to imagine that the most important exchange venue in the Eurozone would be steered from a headquarters outside the EU,” Felix Hufeld told reporters at a conference attended by Reuters. “There certainly has to be an adjustment here.”

Read more: Analysts doubt stock exchange merger will go through after Brexit vote

Mark Field, Conservative MP for the Cities of London and Westminster, told City A.M. there should need for the headquarters to be moved after the Brexit vote.

“I don’t think there’s anything material that has happened that should [lead] to any change,” he said. “The fact that we’re outside the Eurozone already means there’s nothing materially changed. It’s a global exchange and will remain so.”

Field added: “Ultimately, it will be for the exchanges to decide where the HQ should be. And I don’t think the Brexit decision, other than in relation to sentiment, has any material impact on the business case for having the HQ in London, which was what was intended before.”

The stock exchanges responded to the Brexit vote by issuing a joint statement saying they remain “fully committed” to the merger. But analysts have increased doubts the deal will now go through.

Earlier this week, it emerged that some Deutsche Boerse shareholders are seeking more favourable merger terms after the EU referendum vote.

One top 20 investor in the German exchange told Reuters the ownership ratio should be revised following a sharp fall in sterling and falling share price of LSE, which is down around 11 per cent since the vote. Under the current terms of the deal, Deutsche Boerse shareholders would take 54.4 per cent of the joint company.

Read more: Stock exchanges "fully committed" to merger after Brexit

Klaus Nieding, an executive at DSW, an association of small shareholders, said Deutsche Boerse’s board should take “another critical look at the merger plan up to now and either make massive adjustments or bury it altogether”.

Elsewhere, Ulrich Caspar, a member of parliament in the German state of Hesse, where Frankfurt is located, told City A.M. the London headquarters should be moved from London.

He said this week: “It is not possible to make this business in Germany with a headquarter outside the Eurozone and outside the EU.” He also said he expects German regulators to reject the deal.

Both the LSE and Deutsche Boerse have said the location of the holding company of the merged company is a non-negotiable part of the £21bn deal.

Shareholders of both companies have been asked to approve the merger in July.

The LSE and Deutsche Boerse declined to comment.