LSEG plans £200 million share buyback after merger with Deutsche Boerse gets blocked

Maria Nikolova

LSEG seeks a £200 million on-market share buyback, an amount roughly equivalent to the return it would have made if the merger with Deutsche Boerse had proceeded.

The European Commission has blocked the planned merger between London Stock Exchange Group Plc (LON:LSE) and Deutsche Boerse AG (ETR:DB1), citing competition concerns.

In an announcement published earlier today, the Commission said “the merger would have created a de facto monopoly in the markets for clearing fixed income instruments”. In particular, the regulator noted that “the merger would have combined DBAG’s Frankfurt based clearing house Eurex with LSEG’s clearing houses LCH.Clearnet (which comprises London based LCH.Clearnet Ltd and Paris based LCH.Clearnet SA) and Rome based Cassa di Compensazione e Garanzia”.

There was a swift reaction from LSEG, which stated that it regrets the Commission’s decision and looks forward to reviewing the detailed Commission decision in due course.

One of the consequences of today’s regulatory ruling is that the proposed sale of LCH SA by LSEG and LCH Group to Euronext N.V. will also terminate in accordance with its terms, the announcement by LSEG said.

More interestingly, LSEG highlighted its confidence in its prospects as a standalone business. The Group said that as part of the planned merger, it was about to pay a special dividend to LSEG shareholders, contingent on completion of the deal with Deutsche Boerse. Although this special dividend is now not required, LSEG said it was set to honour the capital return commitment, consistent with its capital allocation framework and reflecting its leverage at the low end of its targeted range.

Accordingly, LSEG now aims to launch an on-market share buyback of £200 million, an amount roughly equivalent to the return it would have made in case the merger with Deutsche Boerse had proceeded as planned.

LSEG had earlier voiced its skepticism regarding gaining an approval from the EC regarding the planned merger. This happened after in late February 2017 the European Commission demanded 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. LSEG refused to make such a commitment and, as a result, forecast that the European Commission was unlikely to provide its clearance for the proposed merger.

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