London Briefing: ‘Merger of equals’ may yet be put on ICE

The London Stock Exchange's 200-year-old motto is "Dictum Meum Pactum" ("My Word Is My Bond"). But while the exchange has always kept that promise in business, it has not been quite so consistent in its marriage talks.

The emergence yesterday of Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, as a possible gatecrasher of last week's agreed merger between the London Stock Exchange (LSE) and Germany's Deutsche Börse, means there will yet again be last-minute objections at the wedding.

Always the bridesmaid, never the bride, the LSE was in publicly acknowledged merger talks nine times between 2000, when it first considered a tie-up with Deutsche Börse, and last week, when it announced a “merger of equals” with the German exchange.

Incestuous

Given the incestuous and rapidly consolidating industry in which it operates, the London exchange has no doubt been whispered to many more times in private.

The fate of Luna, as the LSE’s investment banking adviser Robey Warshaw code-named the exchange during in its secret talks with Deutsche Börse – code-named Delta – is a touchstone issue for London’s business community. Chief executive or market trader, derivatives trader or taxi driver, everyone has a view on whether, with Brexit now a possibility, it is right that a key piece of national infrastructure should be in foreign hands, particularly German ones.

But the Ice, which yesterday reserved the right to bid for the LSE itself, should ensure that the marriage games will be decided not by politics but in traditional stock-exchange, 19th-century, free market-style, with cold, hard cash.

Last week, when LSE and its current sweetheart, Deutsche Börse, announced their planned “merger of equals”, it took London by surprise.

With so many vested interests,the exchange has not had a happy time controlling news of its dalliances in the past. Its proposed tie-up with Toronto’s TMX exchange group was leaked in 2012, and some readers will remember the controversial leaked briefing paper mistakenly faxed to journalists when the first Anglo-German tie-up was announced 16 years ago.

The LSE’s strategy at the time was that, if the merger failed, the PR team were to push an off-the-record line to journalists that German intransigence and a lack of sympathy for Anglo-Saxon sensibilities contributed to the collapse of talks. It will be interesting to see whether a similar line is pursued should th e latest tilt at a merger fail.

Details scant

Because last week's news leaked early, the details of the agreed tie-up remain scant. What we do know is that ownership will be split approximately 45-55 per cent in favour of the German exchange; that the chief executive of the merged business will be former UBS investment banking boss Carsten Kengeter, a man still tainted in the City of London by his oversight of the division during the Kweku Adoboli rogue trader scandal; and that the merger will offer no takeover premium to LSE's shareholders. All of which makes it sound rather unequal.

David Cameron is unlikely to provide any solace for objectors. The British prime minister has already given the German exchange the green light for a takeover, despite the controversy of a key piece of British financial infrastructure moving abroad just as Britain faces June's crunch in-or-out European Union vote.

And you would expect that Deutsche Börse, having tried, and failed, to push through its own 2012 tie-up with ICE because of intervention by the EU's then competition commissioner, Joaquín Almunia, will have done its homework properly this time, with Almunia's replacement, Margrethe Vestager, likely to give the smaller Anglo-German tie-up a tough but clear run, despite French protestations.

ICE, the owner of pan-European clearing house Euronext, is, unlike cash-strapped Deutsche Börse, a true global trading giant that can afford to buy the LSE without asking its investors for more cash. ICE could deliver a more Eurosceptic transatlantic merger.

Or, in an even more more perfect solution for London, it could push up the LSE's share price until Deutsche Börse has to accept a true merger of equals. Either way, you can expect the star-spangled banner to be unfurled, at least until the LSE gets a better deal. Helen Power is the former mergers and acquisitions correspondent of the Times and a freelance journalist