The City is holding its breath to see who will blink first in the battle between the European Commission and the London Stock Exchange (LSE), in the case of the latter's £21bn mega-merger with Deutsche Boerse.
LSE published a statement late last night saying it now expects the EU to block the deal. The tie-up was thought to be progressing smoothly until the Commission "unexpectedly" sprung a demand on the exchange to sell its majority stake in income trading platform MTS, something it has said it is not prepared to do.
City A.M. understands the Commission has insisted it's the sale of MTS or no dice, and attempts by the company to compromise have been rejected.
"Competition assessments are driven by the overlaps identified between the merging parties," warned EU and competition partner at Pinsent Masons, Guy Lougher. "Unless the parties agree to remedy fully, and divesting the problematic business is the obvious remedy, the competition issue which the Commission has identified the merger will then not be approved."
The Commission is expected to give its decision on whether the deal can go ahead by 3 April.
LSE had already been told to ditch French clearing arm LCH SA if it wanted the merger to go through, and it agreed to do so to Euronext. It is understood LCH will not be sold if the merger is called off.
Euronext declined to comment.
Despite the mega-merger potentially being consigned to the scrap heap, shares in LSE closed down just 1.1 per cent at 3,090p, while shares in Deutsche Boerse closed down 2.4 per cent at 79.71p.
Graham Spooner, investment research analyst at The Share Centre, pointed out that shares in LSE were holding up better than many other companies when mergers had fallen through.
"It looks as though the London market is not that bothered about this," Spooner said.
A statement issued by the firm last night read: "The LSE Board is highly confident in the strength of LSE's business, strategy and prospects on a stand alone basis, under its strong management team led by chief executive Xavier Rolet."
It had previously been announced Rolet would be standing down from his role if the merger went ahead but it is understood he will stay on if it does not.
The Commission is not the only one to put its foot down over the deal. A group of 40 City grandees and politicians wrote a letter, which was published in The Times last week, calling for the merger to be halted until after the Brexit negotiations.
The deal, which marks the third attempt of the two exchanges to become one, was announced almost a year ago, before the Leave decision was known.
"Negotiating this merger through the relevant authorities was always going to present a challenge, but clearly the referendum result had radically altered the terms of engagement given one party would potentially be operating outside of the Single Market," said Jonathan Reynolds, shadow city minister. "In these circumstances, it is clear that the initial arrangements of this deal needed to be revisited at any rate."
LSE is due to publish its full-year results on Friday. An analysts' consensus predicts the firm will report an adjusted operating profit of £690.5m, down three per cent from £709.5m the year before, and total income of £1.6bn, down 33 per cent from £2.4bn in 2015.