London Stock Exchange and Deutsche Boerse Agree on Merger - Complications Could Ensue
London Stock Exchange (LSE) and Deutsche Boerse, two European stock exchanges, have agreed on terms for a merger. With a combined value of about $30 billion, this merger will create one of the largest exchange companies in the world. It is said that combining the two companies will save them around $500 million a year. This new company, UK TopCo, has attracted attention from U.S. based companies, some more hostile than others. The possibility of upset within the merging companies along with the EU Referendum pose as possibly detrimental threats to this deal.
Merger terms agreed on include Deutsche Boerse shareholders owning 54.4% of the new holding company, and LSE shareholders owning the remaining 45.6%. LSE chairman Donald Brydon will become chairman of UK TopCo and Deutsche Boerse chief executive, Carsten Kengeter, will become chief executive. LSE chief executive Xavier Rolet plans to step down from his role after assisting the year long transition. This attractive deal has U.S. companies contemplating their next move. Intercontinental Exchange (ICE), owner of the New York Stock Exchange, was considering an offer for LSE. Other potentially interested companies include CME Group Inc. and Hong Kong Exchanges. With the potential for other bidders, and more competitive merger terms, LSE might want more time to consider their options.
The second obstacle threatening to complicate the merger is the looming EU Referendum being held on June 23rd. The vote is said to be split down the middle for now, as there are benefits and negative consequences of leaving the European Union. Votes to leave the EU are fueled by the belief that Britain is being held back by the EU, which is said to impose too many rules on business. However, citizens voting to stay in the EU believe the membership makes it easier to transport people, products, and money around the world. It is common for big businesses to share this view. This decision in limbo is affecting other businesses in similar situations, so the expected impact on a $30 billion business will help to outline the potential effects on the rest of the business community. LSE and Deutsche Boerse have organized referendum committees to contemplate the potential impact, but both say the outcome of the referendum is not a condition of the merger because the group would be “well positioned to serve global customers irrespective of the outcome of the vote." However, if Britain does vote to leave the EU, business may be restricted by volume or nature.
The competitiveness of business deals and the possibility of restriction of business are both concerns for all businesses, especially ones that are operating internationally. The outcome of this scenario will outline how similar complications will play out in the future.