Merkel's Government Said to Support Deutsche Boerse-LSE Merger

  • Merkel ally says Europe needs bigger competitor to U.S rivals
  • German lawmakers support hinges on protecting Frankfurt hub

German Chancellor Angela Merkel’s government is leaning toward supporting the proposed fusion of Deutsche Boerse AG with London Stock Exchange Group Plc to create a European powerhouse that could better compete with bigger U.S. rivals, government officials said.

Merkel’s government sees the combination as a way for Deutsche Boerse to grow and avoid being left on the sideline should other exchanges decide to merge, said the officials, who asked not be identified discussing the private deliberations. Key to setting aside reservations that Germany may have will be ensuring that German business interests are protected in the final deal, they said.

The combined entity, to be run by Deutsche Boerse Chief Executive Officer Carsten Kengeter, would locate its holding company in London, while continuing to operate markets from their present locations, the companies said last week. The proposed deal spurred Intercontinental Exchange Inc., owner of the New York Stock Exchange, to consider jumping into the mix with a competing offer for the LSE.

“Europe needs a big exchange which is internationally competitive, especially with the U.S., so I’m fully supportive,” said Michael Fuchs, a deputy chairman of Merkel’s Christian Democrats. “It’s not surprising that the U.S. is now showing interest in a merger with the LSE as they have to fear that Europe will have a very big exchange.”

The federal government’s ability to influence the outcome is primarily through political pressure. Official approval lies with the exchange regulator in Hesse, the state where Deutsche Boerse is based and which is governed by Merkel’s Christian Democratic Union. Hesse’s Economy Ministry said last week it’s too early to say whether the deal will be approved and that the state’s exchange supervisor will examine whether the merger would be detrimental to Frankfurt. Steffen Seibert, Merkel’s chief spokesman, declined to comment on the merger, saying it was a business decision.

Brexit Vote

The talks are complicated by the U.K.’s potential exit from the European Union, which could throw treaties and regulatory frameworks into question. The vote on whether to stay in the 28-nation bloc is scheduled for June 23.

The two European exchanges said discussions are ongoing to combine into a global player worth at least 20 billion pounds ($28 billion), based on the closing share price of the two the day before the deal was announced, that could compete with ICE and Chicago-based CME Group, the world’s largest derivatives market. LSE said Tuesday it hasn’t received a proposal from ICE.

“Capital market access is crucial for the strong German real economy,” Carsten Schneider, deputy parliamentary leader of Merkel’s Social Democrat coalition partner, said in an e-mailed statement to Bloomberg. “A major European stock exchange which is not a takeover target finds my general political support.”

While the government is inclined to support the deal, lawmakers say they won’t just give it a green light. SPD lawmaker Ingrid Arndt-Brauer, head of the Finance Committee in the lower house of parliament, told Bloomberg on Feb. 23 that Germany should question the motives behind the planned merger, threatening to withdraw her support if it only served as a “safety net” for London in the case of an EU exit.

Alexander Radwan, a lawmaker from the Bavarian sister party to Merkel’s CDU who sits on parliament’s finance committee, said he doubts a decision will be made before the U.K. referendum, given regulatory differences between the countries and uncertainty over the vote’s outcome. Germany must weigh the drawbacks for Frankfurt as the country’s financial hub, he said.

"On the one hand, we have an interest in a strong exchange in a European sense that can compete globally," Radwan said in a phone interview. "On the other hand, the savings banks rightly criticize having the seat of the holding in London because that’s where decisions on future business will be made."

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