Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

The proposed combination of the London Stock Exchange and Deutsche Boerse is starting to look more like the merger of equals it's being sold as. A helpful set of annual numbers from the LSE should help allay fears that the terms of the mooted tie-up are unfair.

To re-cap, the U.K. and German exchanges said they were in talks on a potential merger on Feb. 23. The LSE would own 45.6 percent of the enlarged group, and Deutsche Boerse the rest. The difficulty is that the LSE's market capitalization was contributing less than 42 percent to the combination based on the previous day's closing prices: a measure of pre-deal fair value commonly used by investors. That created the impression of a veiled takeover, with the LSE getting a measly premium for surrendering the CEO role to Deutsche Boerse's Carsten Kengeter.

The LSE's results on Friday help justify the terms as proposed. LSE shares had been under-performing Deutsche Boerse's in the three months before the duo's talks became public.

London Lags
LSE under-performance before Deutsche Borse's bid stoked talk that it wasn't a merger of equals
Source: Bloomberg

If that was down to nervousness about the numbers, such fears were evidently misplaced. The LSE has comfortably beaten most analyst expectations, with Ebitda of 769 million pounds ($1.1 billion) and earnings per share of 129.4 pence, both about 7 percent higher than estimates compiled by Bloomberg.

Adjust for this, as well as recent sterling weakness, and the LSE's value contribution to the merger looks to be more consistent with the terms as proposed.

None of this changes the overall picture of the LSE as a company that needs M&A to expand and move forward, a strategy CEO Xavier Rolet has pursued energetically. Organic revenue growth was just 2 percent, when stripping out FX movements. Still, the results should make it easier to sell the transaction to both sets of shareholders as giving them each the appropriate share of the subsequent synergies.

That's critical right now. With Rolet already saying he'll retire if the deal happens, a defense based on the standalone strategy is not an option if another exchange (such as U.S. rival Intercontinental Exchange) makes a counterbid for the LSE. The merger will need the support of regulators and politicians. Any division between the groups' management teams or shareholders would be terminal to the process.

LSE shares were trading just under 1 percent lower at 28.71 pounds in a rising U.K. stock market shortly after the numbers. That removes some of the takeover premium injected into the stock after ICE said it was mulling a bid. Investors are right to be slightly less certain that an alternative transaction wins a recommendation from the LSE.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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