Stock exchange makes commitment to London amid merger HQ doubts

William Turvill
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The London Stock Exchange and Deutsche Boerse agreed a £21bn merger in March (Source: Getty)

The London Stock Exchange has insisted the City will remain the home of its joint headquarters with Deutsche Boerse under the terms of their £21bn deal.

Any changes to the location of the merged entity’s holding company, the London location of which was thrown into doubt after the UK’s Brexit vote, could not be made before the deal completes, LSE chief executive Xavier Rolet said.

After the transaction is completed, however, the board and shareholders of the merged company could potentially opt to shift the base.

“We... simply don’t know what the future holds. But any major decision will be subject to 75 per cent majority,” Rolet said.

But he also explained that London had been carefully chosen as the location of the holding company.

He said: “The deal is set, the legal framework is what it is, this is a carefully calibrated merger of equals designed to create a world leader across geographies, across capabilities.”

Read more: US rival pulled London Stock Exchange bid because it expected Brexit vote

Interim results

Rolet made a statement of commitment to the UK capital as the company reported its interim results this morning.

The LSE Group reported a nine per cent rise in revenue to £721.9m, ahead of analysts’ expectations, according to a Thomson Reuters consensus estimate.

The company’s operating profit, meanwhile, was up nine per cent to £333.3m in the six months to 30 June. This was slightly behind analysts expectations, £334m.

In common with many other UK-listed companies the LSE’s share price dropped significantly after the UK’s Brexit vote – from 2,709p on 23 June to 2,289p on 27 June – but has since recovered to 2,724p.

London Stock Exchange Group London Stock Exchange Group | mobile image

HQ questions

The London location of the merged stock exchange holding company, set in the deal conditions, was thrown into doubt after the UK’s Brexit vote.

Sources close to the deal told City A.M. last month that the merged company would need an EU-based HQ. This would mean, in the event of a full Brexit, the joint HQ would either have to move abroad or be shared between London and an EU city, such as Amsterdam.

This was after the head of Germany’s financial market regulator, Bafin, said the organisation could not be based in London – and therefore outside of the EU – after Brexit.

Read more: After shareholder backing, merging exchanges prepare for the real challenge

Asked by City A.M. what would happen if the Referendum Committee, set up by both companies to deal with issues around the UK’s Brexit vote, were to recommend an HQ move, Rolet pointed out that the UK will remain a member of the EU for up to two years from when the Article 50 notice is issued and the deal will, if completed, close before then.

“The deal isn’t subject to change. Its terms are set and the legal framework does not accommodate any other outcome,” he said.

“The Referendum Committee is designed, over the course of time – there’s no timeline set in that respect – to make any non-binding recommendations to the separate boards and the unified board, post-closing, as regards any customer or shareholder issues that may arise as a result of the outcome of the referendum.”

Rolet added: “Post-closing, the company will be a normal, UK-governed company that will have to adjust to what happens in the world – seize opportunities, continue to service its customers. But as I’ve said before, the governance will be balanced – there will be an equal number of NEDs, six in fact, coming from each side – and a… majority of 75 per cent is required for any substantive changing, like the one you referred to.”