LSE-Deutsche Boerse merger hits the curb due to European Commission’ requirement

Maria Nikolova

LSEG Board has concluded that it could not commit to the divestment of MTS and that the European Commission is unlikely to provide clearance for the proposed deal with Deutsche Boerse.

The planned merger between London Stock Exchange Group Plc (LON:LSE) and Deutsche Boerse AG (ETR:DB1) has hit a regulatory hurdle, due to a requirement by the European Commission to both parties to commit to the divestment of LSEG’s stake in MTS S.p.A (MTS), a major regulated electronic trading platform for European wholesale Government Bonds and other fixed income securities. It is a systemically important regulated business in Italy.

In an announcement, dated February 26, 2017, LSEG explains that it regards the required MTS remedy as disproportionate but it tested thoroughly the feasibility and implications of this remedy. However, after further discussions, the European Commission has requested that the London Stock Exchange and Deutsche Boerse formally submit a remedy proposal for the divestment of LSEG’s majority stake in MTS by 12pm (CET) on Monday, February 27, 2017.

The London Stock Exchange notes that MTS is not on its own a major contributor to LSEG revenues, but adds that LSEG’s Italian businesses account for a big part of Group revenues and profitability. In addition, any change of control of MTS would require the approval of the Italian authorities and would lead to parallel regulatory approval processes in other jurisdictions such as the UK, Belgium, France and the USA.

After discussions with Italian authorities about the European Commission’s requirements and, taking into account prior discussions between the principals and Italian authorities regarding LSEG’s Italian businesses in the context of the planned deal, “the LSEG Board believes that it is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSEG were to give the commitment”. Also, the LSEG Board states that the offer of such a remedy would put under risk LSEG’s important relationships with these regulators and will hurt LSEG’s businesses in Italy and the Combined Group, if the Merger were to complete.

Referring to these factors and the interests of its shareholders, the LSEG Board says it could not commit to the divestment of MTS. LSEG will therefore not be submitting a remedy proposal with respect to MTS.

LSEG believes that the Commission is unlikely to provide clearance for the Merger.

Nevertheless, LSEG says it will keep seeking to implement the merger.

In addition to European Commission clearance, the proposed deal is conditional on regulatory clearances from Italian regulators and all relevant regulators including the Bank of England, FCA, BaFin and the Hessian Exchange Supervisory Authority (HESA), as well as all other regulators and authorities in countries in which LSEG operates.

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