LSE bidding war becomes territorial as trad Europeans go head to head with high-tech Americans

When is a merger between two traditional, established, supposedly aligned national flagship exchanges which operate under the same continental jurisdiction not quite so aligned? In the case of the courtship between London Stock Exchange and Deutsche Boerse which aims to culminate in a $20 billion merger between two of Europe’s most prestigious exchanges, the seemingly […]

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When is a merger between two traditional, established, supposedly aligned national flagship exchanges which operate under the same continental jurisdiction not quite so aligned?

In the case of the courtship between London Stock Exchange and Deutsche Boerse which aims to culminate in a $20 billion merger between two of Europe’s most prestigious exchanges, the seemingly straight forward procedure of conducting the merger once all parties, shareholders and directors are agreed on important terms such as price and post-merger commercial structure, it should go ahead.

The reality, however, could not be further from this and has been blighted by fringe considerations, another having surfaced yesteray and those involved in the proposed merger has taken another complication into consideration.

Suddenly a bout of continental patriotism has emerged as London Stock Exchange CEO Xavier Rolet spoke out against the possibility of one of North America’s largest electronic derivatives venues looking to acquire the London Stock Exchange for $10 billion.

Despite ongoing concerns over the post-merger structure of Deutsche Boerse and London Stock Exchange, emanating largely from Frankfurt, former Deutsche Boerse director Manfred Zass having last week written the deal down as damaging to Frankfurt’s standing, calling it an “investment banker fairy story” and that the “merger of equals” where the boss sits in Frankfurt while the domicile gets to be in London creates a “recognizably lopsided Frankfurt”

Politicians in Germany appear to share the thought, with former Eschborn (Frankfurt suburb) mayor Wilhelm Speckhardt to call it an “unimaginable catastrophe for the town”.

London is well recognized to be the world’s largest financial center and home to Europe’s prominent electronic trading venues, and the lion’s share of interbank electronic order flow, therefore should Germany transfer control to London and then find that a referendum takes place in the summer of this year with results in favor of Britain leaving the European Union, then a wedge would be driven between the strength of London as a bastion of financial prowess and modernity and the remainder of Europe, within which Deutsche Boerse nestles inextricably.

Mr. Rolet showed his disregard for M&A deals in which American companies have bought into European firms over recent times, stating that he does “not want to make the same mistake” as European exchanges that have accepted the terms of US takeovers.

FinanceFeeds first reported last month that IntercontinentalExchange (ICE) had expressed its interest in acquiring London Stock Exchange in an attempt to gazump Deutsche Boerse, a matter that has now escalated with IntercontinentalExchange having presented its formal offer yesterday, to which Mr. Rolet reacted

“I don’t want the LSE ever again to be on the receiving end of a hostile takeover. Takeovers in which you come in, you get what you want, you chuck out the rest – this is not what this is about. I know Euronext is going around, and the French government, and some regulators have said that if we side with ICE, this way we can break up the LSE, so Euronext can buy back Borsa Italiana, can buy back Clearnet, and recreate [something]. Look, they’ve missed [the boat] – they’ve sold out to the Americans, they have nothing left. We don’t want to make the same mistake.”

His powerful diatribe ended by a defense of maintaining a European standing: “What are we going to tell the next generation of entrepreneurs? The only way to fund a high growth business is to go to Nasdaq, or go to San Francisco?” he said.

Chicago’s urbane exchanges are very sophisticated and are often regarded as technology providers first and foremost, driving forward the modernity of electronic markets, whereas Europe’s venues have a traditional standing as hosts of blue chip stock.

Mr. Rolet’s sentiment may have attracted considerable attention if it were not for the lack of unity among parties concerned within Europe.

Just two weeks ago, Lord Myners accused those involved in the merger talks of cronyism as well as expressing concerns over post-merger clearing arrangements.

This concern has surfaced again, after yesterday’s announcement by the European Securities and Markets Authority (ESMA) which set forward new rules that may be applied in 2018, promoting open access systems that have been supported by Mr. Rolet but opposed by American exchanges.

Mr. Rolet stated “Open access is not about co-mingling your clearing houses. It is absolutely not. And I know where that propaganda is coming from. It’s coming from America. When I look at the deal that’s present here [with Deutsche Boerse]… it’s not just that it meets the systemic test, it is compliant with European law” (whilst the UK is still in the EU – ed)

Mr. Rolet further explaiend “You will recall companies – like the companies saying they may have an interest in us –publicly wrote that they were against. Who signed the letters that were against open access in Europe? ICE, LME, Euronext – effectively several ICE companies – so some of these companies have basically made their position clear: they didn’t like the open access model.”

Europhile Mr. Rolet constantly stresses the benefit that he believes London will derive from the merger with Deutsche Boerse. “I think London has advantages that make it a unique city. We wouldn’t have fought hard on that particular deal if we hadn’t believed that the things were secured,” he concluded.

Photograph courtesy of Duisenberg School of Finance

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