Deutsche Börse, LSE to Push Ahead with Merger Despite 'Brexit' Vote--Update
June 24 2016 - 10:18PM
Dow Jones News
By Eyk Henning
FRANKFURT -- Deutsche Börse AG and London Stock Exchange Group
PLC Friday said they would push ahead with their planned $30
billion merger, after the U.K.'s vote to exit the European Union,
but people working on the deal fear that the companies could
struggle to win the backing of investors' and regulators.
A referendum committee consisting of six representatives of both
companies, including Deutsche Börse's Chairman Joachim Faber and
his LSE counterpart Donald Brydon, will in the coming days initiate
talks to assess the impact on the deal, the stock operators said in
a joint statement.
"We are convinced that the importance of the proposed
combination of Deutsche Börse and LSEG has increased even further
for our customers and will provide benefits for them as well as our
shareholders and other stakeholders," said Joachim Faber, Chairman
of the German company and head of both companies' referendum
committee.
Donald Brydon, chairman of the board of the LSE and designated
chairman of the combined group, added the merger represents a
compelling opportunity for both businesses despite the vote.
People familiar with the matter earlier Friday said those talks
will circle around a potential relocation of the planned
London-based holding company. Those people added they were
skeptical that both companies can agree on the issue without
delaying the transaction. The committee will likely take several
weeks if not months to make a recommendation over the deal.
Time is essential however, because LSE shareholders will vote on
the tie up at a meeting on July 4, and the tender offer for
Deutsche Börse shares is due to expire on July 12.
Uncertainty around the deal is weighing on both companies.
Deutsche Börse was down 4% at EUR74.77 ($85.13) while the LSE fell
13% to GBP23.80 (GBP35.4).
People familiar with the deal expect the steep plunge of LSE
shares may leave investors asking for a renegotiation of the merger
ratio. Shareholders in the German company were originally going to
receive 54.2% in the combined group, while LSE investors would have
been left with 45.8%. At least 75% of Deutsche Börse's shares need
to be tendered for the deal to go through.
The main impact [of a Brexit] would be the LSE/DB1 transaction
since it appears unlikely that the parties' shareholders are likely
to vote in favour of this transaction. We expect the spread to push
wider to 8-10% discount of LSE to DB1 as likelihood of the deal
ebbs," brokerage firm Market Securities said in a note to clients
Friday.
Additionally, German politicians and regulators have said that
they wouldn't give the deal their blessing should the U.K. leave
the EU because the combined entity would then be supervised by a
regulator located outside the EU. That appears to be a no-go for
German authorities.
The companies in their joint statement said they're in "ongoing
and constructive dialogue with the appropriate regulators and
authorities."
Industry observers said a possible solution was to let the deal
go ahead as planned and assure regulators that the company's base
would be moved to Frankfurt after closing of the transaction, which
was planned for the first quarter next year. But many observers
were skeptical about such a scenario because any relocation would
necessarily lead to a change in the planned management setup, a
time-consuming process that won't be resolved before LSE's July 4
shareholder meeting.
Under the current plan, Deutsche Börse's Chief Executive Carsten
Kengeter is poised to lead the combined group. An LSE
representative would likely have to lead the combined company,
however, to keep the powers of the so-called merger of equals in
balance.
In any case, both companies could attempt to strike a new deal
should the current one collapse. That could be complicated,
however, because the owner of the New York Stock Exchange,
Intercontinental Stock Exchange Inc., could come back with a bid
for LSE.
Write to Eyk Henning at eyk.henning@wsj.com
(END) Dow Jones Newswires
June 24, 2016 22:03 ET (02:03 GMT)
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