London Stock Exchange plunge may threaten merger

Britain's decision to leave the European Union may threaten the planned merger between Deutsche Börse and the London Stock Exchange Group. Shares in both companies tumbled.

The 9 per cent plunge in the British exchange's shares could make the existing terms of the all-stock tie-up untenable, said Ben Kelly, an analyst at Louis Capital Markets.

The transaction is among the biggest deals between European companies right now, and is faced with other uncertainties including mounting criticism in Germany about the combined company’s proposed headquarters in London. Potential rival suitors may now also be less likely to make a bid for LSE.

“Not only do you have increased risk of the deal breaking, you also have the argument that a counterbid is even less likely,” London-based Mr Kelly said. “It also could be argued that Deutsche Börse would be overpaying for a post- Leave-vote LSE. This wouldn’t help, as it would lend credence to local opposition to the deal.”

LSE’s shares slumped 8.6 per cent to 2,500 pence in London, giving the exchange operator a market capitalisation of about $12 billion.

Deutsche Börse’s stock dropped 6.4 per cent to €76.45 in Frankfurt.

The companies have long said Brexit wouldn't affect the takeover. Deutsche Börse and LSE repeated that claim today.

"The decision of the UK to leave the EU makes it ever more important to maintain and foster ties between the UK and Europe," said Joachim Faber, chairman of Deutsche Börse and chairman of the companies' referendum committee.

As it’s currently structured, LSE equity holders would own 45.8 per cent of the enlarged group, while Deutsche Börse stockholders would get the remaining 54.2 per cent. LSE shareholders are scheduled to vote on the acquisition on July 4th. Deutsche Börse shareholders have until July 12th to tender their shares.