London Stock Exchange, Deutsche Börse claim merger to go ahead despite Brexit vote

The London Stock Exchange (LSE) and Deutsche Börse have insisted their proposed £21 billion merger will still go ahead, despite a German politician declaring the tie-up “dead” after the UK voted to leave the European Union.

The two companies announced merger plans this year after two previous failed attempts. The deal that would lead to the combined firm domiciled in Britain, with head offices in Frankfurt and London.

But German politicians and regulators said the EU referendum result meant the company should not be based in London and cast doubt on whether the deal could go ahead at all.

“As of today, the merger is dead, there are no two ways about it,” Thorsten Schäfer-Gümbel, a leading light in the SPD, coalition partner of Angela Merkel’s CDU,told regional broadcaster HR.

Several other German politicians said that the merger could go ahead, but only on the condition that the company be based in Frankfurt. Michael Fuchs, a senior figure in the CDU, said the German government should take steps to ensure that the new company was not based in the UK.

“Out is out,” he told Reuters. “There cannot be a London base for the merged company after the Brexit.”

One German regulatory source added: “There is rising irritation and increasing concern that London as a base poses a problem.”

The deputy state minister of Hesse, where Deutsche Börse is based, also hinted that the deal might have to be redrawn in the light of the referendum result.

“We will take account of yesterday’s decision in our review,” Tarek Al-Wazir wrote on his Facebook page. “We will wait and see whether the plans remain in their current form.”

Fears that the deal could collapse sent the London Stock Exchange’s shares tumbling by more than 10% to £24.47p, while Deutsche Börse’s stock dropped more than 9% to €74 (£60).

“It is now less likely that the deal will go through,” said Philipp Haessler, an analyst with Frankfurt-based Equinet bank.

Both companies earlier insisted that the merger was still on course, regardless of the outcome of the vote.

In a joint statement they said: “The LSEG board and the Deutsche Börse management board remain fully committed to the agreed and binding merger terms, and continue the process of obtaining the necessary approvals.”

Deutsche Börse’s chief executive, Carsten Kengeter, who is to run the combined company, said the merger still created opportunities despite the vote, pointing out that the German exchange was already active in other financial centres outside the EU.

“The Brexit decision is a setback for Europe but it’s also a good chance for a renewal and a constructive reform debate for the EU,” he told German broadcaster ARD.

“To maintain economic strength that can then be translated into growth and jobs, we have to do all we can to combine the strengths of different financial centres rather than divide them.”

In their third attempt at a tie-up, the two exchanges are aiming to create a European powerhouse of trading in stocks, bonds and complex financial instruments to take on rivals in the US and Asia.

LSEG investors will be asked to back the deal at a meeting on 4 July.

Deutsche Börse shareholders have until 12 July to tender their shares, swapping them for stock in the new company.

Source: The Guardian