Photographer: Chris Ratcliffe/Bloomberg

LSE, Deutsche Boerse Do ‘Street Sweep’ to Hinder Rivals

  • Companies hoard banks to make it harder for rivals to bid
  • ICE says it's considering counter bid, CME said to also look

London Stock Exchange Group Plc and Deutsche Boerse AG have gone on a hiring spree for banks in a so-called street sweep, as they try to fend off interlopers to their European exchange merger by hoarding advisers and financing, according to people familiar with the matter.

LSE -- whose lead adviser in the transaction is Robey Warshaw LLP -- is in the process of signing up additional banks including Goldman Sachs Group Inc., JPMorgan Chase & Co., Royal Bank of Canada, UBS Group AG, Barclays Plc and Societe Generale SA, according to people familiar with the matter. Deutsche Boerse, whose main adviser on the deal is Perella Weinberg Partners LP, is also close to retaining Deutsche Bank AG, Bank of America Corp. and HSBC Holdings Plc, said the people, who asked not to be identified because the matter is private.

The sweep is a classic M&A defense move from the British and German companies, to make it harder for U.S. rivals such as Intercontinental Exchange Inc. and CME Group Inc. to bust up their marriage, the people said. Atlanta-based ICE on Tuesday confirmed that it’s exploring an offer for the LSE, attempting to scuttle the U.K. company’s merger talks with Deutsche Boerse, which would create a dominant European stock exchange operator.

Placing Bets

Bankers have been forced to make difficult decisions on which company to advise after receiving calls from several exchange operators, the people said. The advisers have to consider long-term client relationships as well as, in effect, placing their bets on the likeliest winners, since fees are usually only paid when a takeover succeeds, the people said.

Representatives for Deutsche Boerse, LSE, Robey Warshaw, Perella Weinberg, Goldman Sachs, Royal Bank of Canada, Bank of America, Barclays and Deutsche Bank declined to comment. Representatives for JPMorgan Chase, UBS, Societe Generale, and HSBC didn’t respond to requests for comment. 

Street sweeps emerged as a popular dealmaking tactic during the hostile takeover boom of the 1980s, although they’ve become less common in recent years. The pipeline conglomerate Energy Transfer Equity LP employed the strategy last year in its pursuit of Williams Cos.

But it is also not unusual for exchange deals to have a broad roster of advisers, given the extensive relationships they have with banks. Fourteen banks were listed as advisers in Intercontinental Exchange Inc.’s $10 billion purchase of NYSE Euronext in 2013, according to data compiled by Bloomberg.

ICE, the owner of the New York Stock Exchange, is working with Morgan Stanley and Moelis & Co. as it considers a bid, according to a statement on Tuesday. The news propelled LSE’s shares to a record high, up as much as 9 percent in London trading, the highest level since 2001, according to data compiled by Bloomberg.

Deutsche Boerse and LSE last week announced plans to combine and create a global player worth at least 20 billion pounds ($28 billion), which could better compete with ICE as well as CME Group, the world’s largest derivatives market. A German-British merger could also give customers a European champion for primary markets in London, Frankfurt and Milan, as well as access to a pan-European stock venue called Turquoise.

A combination “makes a great deal of sense,” Deutsche Bank co-Chief Executive Officer John Cryan told a conference in Frankfurt on Wednesday, citing the need for size to make the necessary investments in technology. The German bank is “formally advising Deutsche Boerse, so I’m biased,” he added.

CME Group is also working with advisers to assess whether it could challenge the deal, separate people familiar with the matter said. While a bid for LSE is the most likely option, discussions are at an early stage and the Chicago-based exchange firm may choose not to proceed, they said.

The exchange business is rife with acquisitions. ICE, led by Chief Executive Officer Jeff Sprecher, became a global powerhouse in part through dealmaking, including the purchase of NYSE Euronext, and October’s $5.2 billion acquisition of Interactive Data Holdings Corp.

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