UK Edition
London Stock Exchange wins shareholder support for Deutsche Boerse deal
The London Stock Exchange has won support from its investors to proceed with its £20bn merger with Deutsche Boerse, despite concerns that the firm is “shackling itself to a corpse” inside the European Union.
An overwhelming 99.89pc of voting shareholders supported the deal going ahead, far above the 75pc threshold required. Having cleared this hurdle with LSE investors, the two companies have until July 12 to amass support among Deutsche Boerse’s shareholders, before working to win approval from several dozen competition authorities around the world.
At the meeting in central London, one LSE shareholder asked whether “we are sure we want to shackle ourselves to a corpse” inside the EU, noting the French president Francois Hollande’s recent call for euro clearing to move from London to inside the eurozone.
“I don’t think that’s what we’re doing at all,” said Donald Brydon, the chairman of the LSE. “But it really behoves everyone at the moment to remember we are still in the EU and will be for the next two years at least. In that time we have the opportunity to work out the optimal structure.”
Mr Brydon acknowledged that exchanges around the world are sizing up chances to take “valuable assets” away from the London in the uncertainty around Brexit: "There are some people already seeking to pick over the bones of the UK very, very rapidly indeed. Everyone would be wise to take things a step at a time in this area.”
After the vote in support of the Deutsche Boerse merger, the LSE said its joint referendum committee would take “many months” to work out the precise impact of leaving the European Union.
The current structure of the all-share deal awards the group headquarters to London, and the post of chief executive to Deutsche Boerse’s Carsten Kengeter.
“Whether the UK is just European or a member of the EU, the merger will create a globally competitive, industry defining market infrastructure group at the service of European industry,” the firm said.
Politicians in Deutsche Boerse’s home state of Hesse have the power to block the deal and several figures in Germany have complained that the UK’s retreat from the European Union undermines the logic of the deal.
The companies expect to save €450m from their combined costs base, by cutting 1,250 jobs and closing overlapping back office functions, and also believe they can make €250m in extra revenues per year within five years of completing the merger.
This is the third time that the LSE and Deutsche Boerse have attempted to combine their businesses since 2000. The first takeover was scuppered by a rival offer from the Swedish markets operator OM, while the second bid in 2004 crashed into opposition from LSE shareholders and competition authorities worried about the new group’s dominance in equity trading.
While shareholders in the London firm have approved the latest deal, there are more hurdles to overcome before the merger can complete, in late 2016 or early 2017. Antitrust authorities in around 40 jurisdictions are set to scrutinise the merger to ensure the pairing does not impede competition.
LCH.Clearnet and Eurex, the exchanges' clearing houses that acts as a middleman in large trades, are set to allow customers to lower their margin payments if they trade across both houses. This proposal has prompted complaints from some who fear a risk of instability in times of stress.
LCH has a complex structure that places 43pc of the company in the hands of its members, but the firms have reportedly considered shifting Clearnet, the French arm of the business, into new ownership to ease competition concerns.
A rival bidder such as Intercontinental Exchange could still emerge to gatecrash the LSE's plans, although ICE walked away in May and is barred from returning for at least six months under UK takeover rules. CME Group has also been linked to the LSE, while Mr Kengeter has said Deutsche Boerse could also fall prey to an American firm if it does not combine with its London counterpart.