Photographer: Hannelore Foerster/Bloomberg

Germans' Canary-Wharf Trek Offers Clues to a Bourse Merger Plan

  • Early morning commutes to U.K. capital illustrate the shift
  • Deutsche Boerse's new CEO has put an emphasis on London

To get a sense of Deutsche Boerse AG’s affinity for the U.K., a good place to start is London City Airport at 7:35 a.m. on a weekday when the first Lufthansa flight from Frankfurt lands.

That’s when a stream of personnel from the German exchange operator disembarks and boards an overground train headed for the company’s Canary Wharf offices, according to people close to the firm. The employees, many of whom work for the firm’s prized Eurex derivatives trading business, are part of a company that has increasingly leaned toward London since Carsten Kengeter became chief executive officer in June.

That shift is accelerating as Deutsche Boerse tries to combine with London Stock Exchange Group Plc, which started out in a London coffee house in 1698. Stock exchanges serve as symbols of capitalism and national pride, making politicians and citizens alike suspicious of takeover attempts by foreigners. But rather than turning LSE into a German satellite, there are signs that Frankfurt-based Deutsche Boerse is becoming more British.

At first glance, Britons might seem to have reason to worry that their sway over the London Stock Exchange is being degraded. While the deal was described as a merger of equals, Deutsche Boerse shareholders would get a bigger, 54.4 percent slice of the combined company, according to the terms under negotiation. LSE CEO Xavier Rolet would step aside should the companies merge, making way for Kengeter to run the bulked-up firm.

However, Deutsche Boerse is strengthening its ties to London, underscoring the city’s status as the key financial center in the region. It recently took up another floor in its Canary Wharf offices.

It makes sense that a CEO who hails from Goldman Sachs Group Inc. and is laser-focused on his banking customers would spend more time in London. More than 250 foreign banks are centered there, the most of any city in the world.

“Naturally Carsten would be forging closer relationships with banks, which LSE has been very successful with,” said Remco Lenterman, who for a time traded stocks with Rolet at Goldman Sachs in London. Lenterman was most recently a managing director at automated trader IMC Financial Markets. “Clearly the combined entity would have closer relationships to The City than Deutsche Boerse had.”


The combined holding company would be based in the U.K. capital, and its stock would be listed in both London and Frankfurt. LSE Chairman Donald Brydon, one of London’s best known senior directors, would likely retain that role at the new exchange operator, according to a statement Friday. Brydon worked at Barclays Plc for two decades and was chairman of the London Metal Exchange.

Deutsche Boerse’s Anglicization began in 2004, when it tried to woo LSE by shifting its official language to English. A year later the German exchange was forced to drop its takeover offer after shareholders led by hedge funds opposed the plan. The deal’s demise led to the ouster of former Chief Executive Officer Werner Seifert.

For LSE, the London part of its name had already been diluted. Its biggest shareholder is the Qatar Investment Authority, and the money it makes from the U.S. rivals its U.K. income. The exchange business owns a Milan-based stock market and a technology company in Sri Lanka.

“Companies transcend borders and have done for some time and it’s even more the case now,” said Thomas Caldwell, chief executive officer of Caldwell Securities Ltd., a money management firm in Toronto. Caldwell was a NYSE Euronext shareholder when Deutsche Boerse attempted to buy that company in 2011.

London Stock Exchange isn’t a total misnomer. Rolet is a member of Prime Minister David Cameron’s advisory group. Chancellor of the Exchequer George Osborne’s photo is on page 4 of the third edition of the exchange’s “1,000 Companies to Inspire Britain" report.

City Meetings

As for Kengeter, his family lives in Wimbledon, England, and he taught at the London School of Economics before ascending at Deutsche Boerse.

The German citizen spends as much or more time in London than any of his executives, according to people close to the company. He joins employees when they meet with customers in The City and Canary Wharf, the people said.

The ranks of his top executives have increasingly British resumes. Rob Jolliffe became global head of sales last year and, like his boss, had a stint at Goldman Sachs after studying at Oxford. Most of his career has been in London. Global Head of Product Development Ashwin Kumar has worked in London for the past 12 years and is a U.K. passport holder.

The pull toward London shows a vote of confidence in the U.K. at a time when the country is considering leaving the European Union. Should the so-called Brexit take place, economists have warned that growth could be impaired. The 20 billion pound ($28 billion) merger signals the CEOs think London will come out the other side just fine. U.K. voters will decide on June 23 whether to stay in the EU.

The Cube

Deutsche Boerse is still German. Its suburban Frankfurt offices, known as the Cube, have the traditional trappings of such companies, like the staff canteen where most employees have lunch. There’s also a quintessential emphasis on “alignment,” people close to the company said. That means disagreements are expected to be smoothed out before a meeting starts, rather than in front of peers. Meetings are often a fait accompli.

As the German company expands its reach, tie-up documents suggest it’s keeping its Frankfurt base. The merged business would still have a headquarters in Germany’s financial capital. Key businesses would keep their brand names. Frankfurt Main Finance, which represents Frankfurt’s financial community, lauded the potential deal and said it’s important for Europe to have “its own strong financial infrastructure.”

Deutsche Boerse’s efforts to narrow the distance between itself and its customers doesn’t mean it’s leaving Frankfurt, according to a person close to the company who asked not to be named, citing confidentiality. It’s not an either-or proposition, the person said.

Anxieties and patriotism aside, regulators are a major remaining obstacle to completing the LSE-Deutsche Boerse merger. The European Union’s Competition Commission could still block it, just as it did when the German company tried to buy NYSE Euronext in 2011.

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