LSE and Deutsche Börse agree deal to create giant exchange

The London Stock Exchange Group and Deutsche Börse have unveiled a deal to combine, a move they hope will fight off interlopers and persuade regulators to bless the creation of a champion for European trading.

A deal will create one of the world’s largest exchanges operators, trading more than €5.2 trillion in equities and more than 3,200 companies listed on its markets.

A combination of Europe's two largest exchange operators by market capitalisation would also create a regional rival in derivatives trading to take on the world's largest markets operators, CME Group and Intercontinental Exchange of the US and Hong Kong Exchanges and Clearing.

As expected, the two companies said London would be the home of the new holding company, which would have a combined value of about £21 billion, and the Deutsche Börse's Carsten Kengeter would be its chief executive.

Combined business

Donald Brydon

, chairman of LSE, would become chairman of the combined business and

Joachim Faber

, chairman of Deutsche Börse’s supervisory board, would become deputy chairman.

Xavier Rolet

, chief executive of LSE, will step down if the deal goes ahead.

Mr Kengeter said the deal was “an industry-defining, value-enhancing merger of equals”. Mr Rolet said the deal was not just good for big blue- chip issuers but would provide an alternative to bank lending for millions of small and medium-sized companies across Europe. “That is the whole point” of the tie-up, he said.

The big uncertainty facing the deal is whether ICE will enter the bidding for the LSE.

ICE, which owns the New York Stock Exchange, said earlier this month it was considering making an offer. A previous deadline of March 29th for ICE to make an offer no longer stands now that the LSE and Deutsche Börse have unveiled their deal, giving the US rival more time to consider its next move.

Although the two companies describe the deal as a merger, Deutsche Börse is paying a takeover premium to the LSE.

Shareholders

Under the terms, LSE shareholders will receive 0.4421 shares in the combined group for every LSE share they own, while Deutsche Börse shareholders will receive one share.

This means that LSE shareholders would own 45.6 per cent of the combined group while Deutsche Börse shareholders would own 54.4 per cent.– Copyright The Financial Times Limited 2016