London Stock Exchange, Deutsche Börse Agree to $30 Billion Merger -- 2nd Update
March 16 2016 - 6:21AM
Dow Jones News
By Eyk Henning in Frankfurt, and Ian Walker and Giles Turner in London
London Stock Exchange Group PLC and Deutsche Börse AG on
Wednesday agreed to an all-share merger, creating Europe's biggest
securities-markets operator worth more than $30 billion.
The companies said the combination would generate about EUR450
million ($499.9 million) of cost savings a year and offer the
opportunity to boost revenues. The figure is above what most
analysts had expected.
However, while LSE and Deutsche Börse executives promoted the
merits of the deal, the attention of some investors is now on a
potential counterbid for the LSE, whose shares trade at roughly a
7% premium to the deal terms, bankers and traders say.
U.S. rival Intercontinental Exchange Inc., the operator of the
New York Stock Exchange, said earlier this month that it was
considering a possible bid for the LSE. A spokesman for ICE
couldn't immediately be reached for comment.
"It is the right time to make such a transformational deal,"
Deutsche Börse Chief Executive Carsten Kengeter said, adding that
the combined company would be the world's largest exchange operator
by income. Mr. Kengeter will be CEO of the combined company.
Of the merged entity, 45.6% will be owned by LSE shareholders
and the rest by Deutsche Börse shareholders.
The combined company will be worth about $30.5 billion based on
Tuesday's closing share prices. Shares in Deutsche Börse rose about
1% in early trading Wednesday, while LSE eased 0.3%.
The two exchange operators announced last month that they were
in talks. Since then, ICE said it was considering making an offer
for LSE. Chicago's CME Group Inc. might also be in the running,
according to a person familiar with the matter. Hong Kong Exchanges
& Clearing Ltd. has said it is closely watching the discussions
between LSE and Deutsche Börse.
The deal especially puts pressure on ICE to come forward with a
counterproposal, according to people familiar with the
transaction.
Shareholders in both the LSE and Deutsche Börse said they are
expecting a bid from a U.S. rival. One Deutsche Börse shareholder,
who declined to be named, said "we are expecting a counterbid" from
either ICE or the CME.
A major U.K. shareholder in the LSE said: "We don't want a full
share deal. We would expect some cash" from an ICE counterbid.
For the merger to go through, at least 75% of shares in Deutsche
Börse need to be tendered, while at least 75% of LSE shareholders
need to vote in favor of the deal.
The expected EUR450 million in cost savings is higher than what
most analysts had expected and could make the combination more
attractive to shareholders of both companies, increasing the
chances of the deal going through.
Still, the planned tie-up of the two European rivals isn't a
done deal as it would face a number of hurdles, such as regulatory
approval by the European Union's antitrust authority and local
supervisors. The EU in 2012 blocked a proposed merger of Deutsche
Börse and NYSE Euronext.
The deal is conditional on receiving competition clearance from
European Union, the U.S. and Russia. The exchanges have already
begun discussions with a number of regulators.
The combined company will employ more than 10,000 staff and have
over 3,200 companies listed on its markets, with a combined market
cap of EUR7.1 trillion, as of data from the end of 2015. The
combined total Income of EUR4.7 billion in 2015 means the merged
entity would be the world's biggest exchange group.
The company will be led by Deutsche Börse's Mr. Kengeter as CEO,
while LSE Chairman Donald Brydon will chair the board. The LSE's
Chief Financial Officer David Warren will be the group's finance
chief.
On completion, LSE CEO Xavier Rolet will step down but become
adviser to the chairman and deputy chairman to assist with a
successful transition.
The newly created exchange would be domiciled in London with a
head office in both London and Frankfurt.
Mr. Kengeter said the terms of the deal won't be changed if the
U.K. votes to leave the European Union in a referendum later this
year.
However, the companies have created a referendum committee to
examine the "ramifications" of the U.K. potentially leaving the EU.
They add that "the outcome of that vote might well affect the
volume or nature of the business carried out by the combined
group," but add that "the outcome of the referendum is not a
condition of the merger." Joachim Faber, the Deutsche Börse chair,
will lead the committee.
Ulrike Dauer in Frankfurt contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com, Ian Walker at
ian.walker@wsj.com and Giles Turner at giles.turner@wsj.com
(END) Dow Jones Newswires
March 16, 2016 07:06 ET (11:06 GMT)
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