Home ListingMarch 16, 2016

LSE and Deutsche Börse Confirm Merger

The deal will create one of the biggest stock exchange groups in the world, as well as combining Europe’s top index providers.

Reported by Featured Author

The largest stock exchanges in the UK and Germany have agreed to merge, creating a €27.5 billion ($30.5 billion) financial giant.

London Stock Exchange Group (LSE) and Deutsche Börse AG formally agreed the merger today, having announced talks on February 23.

The deal—described by the firms in a joint statement as “a merger of equals”—sees leading European index providers FTSE Russell and STOXX come under the same ownership.

“The combined group brings together London, a leading global financial centre, and Frankfurt, the home of the European Central Bank and access point to Europe’s largest economy, in an industry-defining combination,” the statement said.

The merger “brings together two of the most respected and successful market infrastructure providers in the world to lead the way in European capital markets and set the benchmark for further growth and best-in-class services,” said Carsten Kengeter, CEO of Deutsche Börse.

The combination should result in “substantial cost and revenue synergies,” LSE CEO Xavier Rolet added. Savings should reach as much as €450 million a year, according to the merger announcement.

However, the savings the deal aims to achieve “seem rather meagre in a merger which appears to be designed to avoid upsetting staff, directors and, indeed, competition authorities,” said John Colley, a professor at Warwick Business School.

“‘Mergers of equals’ usually result in a lack of clarity in direction and leadership as both camps jockey for influence,” Colley added, referring to the new group’s combined leadership structure. He warned that the combination of executives from both companies could result in a “confused” leadership and “a failure to drive cost savings opportunities arising from the merger.”

Kengeter is to become chief executive officer of the combined entity, with Rolet remaining for a year as an advisor to Donald Brydon (currently LSE chair) and Joachim Faber (Deutsche Börse chair), who will be chairman and deputy chairman respectively.

The agreement gives LSE access to Deutsche Börse’s derivatives trading businesses, while the Frankfurt-based group will benefit from improved distribution through its London partner, according to CIO’s sister publication The Trade. Analysts at Credit Suisse have already speculated that the combined group could bid for NASDAQ in an effort to expand in the US.

“The real issue is achieving scale to compete on a global scale against already consolidated opponents,” Colley said. “Europe needs a strong champion to compete against the US exchanges and Hong Kong. However, competition authorities remain to be convinced of this argument.”

The merger follows LSE’s high-profile acquisition of Russell Investments in 2014. It subsequently put the asset management business up for sale, stripping out its indexes. TA Associates bought the remainder of Russell for $1.15 billion in October last year.

The full details of the merger and subsequent expected ownership structure are available on Deutsche Börse’s website.