London Stock Exchange (LSE) shareholders are expected to give their backing to the proposed £21bn merger with Deutsche Boerse on Monday.
However, gaining LSE shareholder approval is just one of many hurdles the deal is facing in the coming months, with ongoing pressure on the tie-up coming from Germany after the UK’s Brexit vote.
Shareholder advisory groups Pensions & Investment Research Consultants (Pirc), Glass Lewis and Institutional Shareholder Services (ISS) have each recommended LSE investors vote in favour of the deal. Activist hedge fund the Children’s Investment Fund has also indicated that it, as an LSE shareholder, will approve the deal.
After the LSE vote, Deutsche Boerse shareholders have until 12 July to approve the deal. Last week, it emerged that some shareholders of the German company are seeking more favourable terms following the EU referendum.
One top 20 investor told Reuters the ownership ratio should be revised following a sharp fall in sterling and the falling share price of the LSE, which is currently 2,523p, down around seven per cent on 23 June.
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”.
The biggest challenge facing the deal, though, is believed to be the upcoming regulatory hurdles.
Analysts are BNP Paribas believe the merger is “unlikely” to go through. “We now see a low probability of the deal closing given Brexit and the upcoming competition commission review process,” Arnaud Giblat and Gregory Simpson said in a note last week.
Elsewhere, the intervention last week of Felix Hufeld, the head of German financial market regulator Bafin – who said the joint headquarters of the exchange could not be based in London after Brexit – was seen as significant.
A source close to the deal told City A.M. the location of the headquarters will now be debated at a senior level, putting its London location in doubt. An LSE spokesman said: “This is untrue. Both companies have said, and re-confirmed on Friday, that we remain fully committed to the agreed and binding merger terms, and continue the process of obtaining the necessary approvals.”