22 October 2016
The combination of Deutsche Boerse (left) and LSE would create the world's biggest exchange by revenue. Photos: AFP
The combination of Deutsche Boerse (left) and LSE would create the world's biggest exchange by revenue. Photos: AFP

Frankfurt and London seal US$30 bln tie-up to counter US threat

Deutsche Boerse AG and London Stock Exchange Group plc agreed to combine in a US$30 billion deal to create a European trading powerhouse better able to compete with US rivals encroaching on their turf, Reuters reports.

But the deal, which is the third attempt to link the Frankfurt and London exchanges, may prompt a takeover war after New York Stock Exchange owner Intercontinental Exchange said it may bid for the British group.

Nearly 16 years after Deutsche Boerse first tried to take over LSE, the exchanges said last month they were discussing an all-share merger, which they confirmed Wednesday would give Deutsche Boerse shareholders 54.4 percent and LSE investors 45.6 percent of a new company.

This offers a unique opportunity for Frankfurt, which has always played second fiddle to London as a global financial center, something recognized by the German government, which said it would welcome the deal if it strengthened Frankfurt.

If it goes ahead, the combination would create the world’s biggest exchange by revenue, forecast at 4.7 billion euros (US$5.27 billion) this year from stock, bond and derivatives trading, indices, market data, and clearing and settlement.

The exchanges sought to sell the deal to investors with the lure of annual cost savings of 450 million euros (US$500 million).

They also promised users — the banks and fund managers that pay fees to trade and companies that pay to be listed — “substantial benefits”, but gave no figures.

In a clear effort to win over Europe’s politicians to the benefits of a dominant pan-European exchange, Deutsche Boerse chief executive Carsten Kengeter said it would enable Europe to enhance its capital markets. This chimes with European Union plans for a “capital markets union” to compete better with the United States and Asia.

Deutsche Boerse has been under constant pressure because Europe was the “natural space” for expansion for North American and Asian rivals, and the deal provides the critical mass needed for Germany and Europe overall to fight back, Kengeter said.

He said he expects the deal to close by the end of 2016 or in early 2017.

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