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Questions now hang over the City of London’s status as the EU’s undisputed financial centre. Photograph: Phil Toscano/PA
Questions now hang over the City of London’s status as the EU’s undisputed financial centre. Photograph: Phil Toscano/PA

LSE and Deutsche Börse say proposed merger can withstand Brexit

This article is more than 7 years old

Some in Germany called for rethink after referendum but companies remain focused on deal as LSE shareholders vote in favour

The London Stock Exchange and Deutsche Börse said the terms of their merger would withstand Britain’s vote to leave the EU, after LSE shareholders voted almost unanimously in favour of the deal.

At a meeting in London, 99.89% of LSE shareholder votes were cast for the company to be acquired by Deutsche Börse. Shareholders were expected to support the deal but it has faced growing opposition in Germany since the UK vote for Brexit in the 23 June referendum.

Before the vote, LSE and Deutsche Börse established a referendum committee to examine problems created by a Brexit vote.

Announcing its shareholders’ vote for the merger on Monday, LSE said the committee would work to ensure the combined company met all regulatory requirements. Because the UK is likely to stay in the EU for at least two years it may take many months to complete that work, LSE said.

LSE added: “The parties emphasise that the agreed transaction includes all necessary mechanisms to respond to the outcome of the referendum. 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.”

About 50 shareholders gathered at the low-key meeting, held at the London offices of Freshfields, LSE’s legal advisers. Two asked questions.

Dinesh Jain, an individual shareholder, asked why, now Britain was leaving the EU, “do we want to shackle ourselves to a corpse”, Reuters reported. LSE should scrap the merger, which Germany was likely to veto, and instead do deals with exchanges in Asia and Latin America, he said.

Donald Brydon, LSE’s chairman, stuck by the deal and said other countries such as France were looking to take business away from LSE.

“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,” Brydon said.

The referendum committee will respond to developments in Britain’s negotiations with the EU but the main terms of the deal will remain intact and could only be changed by further shareholder votes once approved.

The holding company for the combined group will have its main listing in London but will also be traded in Frankfurt and the company will be regulated in the UK. Carsten Kengeter, Deutsche Borse’s chief executive, will run the company.

The exchanges announced a £21bn deal in February to create a European powerhouse of trading in stocks, bonds and complex financial instruments to take on rivals in the US and Asia. It is the third time the companies have attempted a merger after failed attempts in 2000 and 2005.

Before the referendum, both companies claimed the merger was Brexit-proof. But following the vote, German politicians and regulators have criticised the deal and called for revisions to the terms or for it to be scrapped.

Germany’s markets regulator BaFin said last week the plan to base the combined company in London would not work if the UK was outside the EU. BaFin said it was difficult to imagine the most important exchange in the eurozone being run from outside the EU.

BaFin cannot veto the deal but Deutsche Börse will face pressure to respond to the regulator’s concerns along with the German state of Hesse, where the company is based and which has a veto power.

Several German politicians called for the combined company’s base to be in Frankfurt, while Thorsten Schäfer-Gümbel, a leading Social Democratic party politician, said the deal was dead.

Joachim Faber, Deutsche Börse’s chairman, said: “I strongly endorse the statement of London Stock Exchange Group following their general meeting today and continue to recommend the transaction to the shareholders of Deutsche Börse.”

With questions hanging over the City of London’s status as the EU’s undisputed financial centre, politicians in other countries are eyeing opportunities to attract banks and other financial companies to base their operations there.

LSE and Deutsche Börse said after the referendum result was announced that the merger remained on course and that the rationale behind it was intact.

LSE shares fell more than 15% in the two days after the referendum result was announced but have recovered some of their losses. The shares closed down just over 1% at £24.93 on Monday.

Deutsche Börse shareholders will vote in a postal ballot and have until 12 July to swap their shares for those of the new company.

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