Deutsche Boerse Takes Aim at Local Opposition to London Merger

  • German CEO sees LSE deal linking Frankfurt to tech, funding
  • London headquarters among reasons for negative views locally

Deutsche Boerse AG’s plan to take over London Stock Exchange Group Plc has been facing objections at home, forcing the company to strike a difficult balance between shareholders and locals as it seeks to create a European industry powerhouse.

The German exchange is seeking to ease concerns of local politicians and Frankfurt-based firms, with one survey saying companies negatively view the deal’s potential impact on the country’s financial capital. But Chief Executive Officer Carsten Kengeter Tuesday sought to frame the deal more positively, saying combining Frankfurt with London will create a bridge of financial technology and prevent a corporate exodus abroad in search of funding.

“Nowhere in Europe is there so much capital, so much finance and so much fintech know-how than in London,” Kengeter said at an event in Frankfurt.

Deal Hurdles

As the red, double-decker London bus on Deutsche Boerse’s 2015 annual report suggests, the Frankfurt-based exchange is committed to its deal with LSE. But discontent at home adds to the merger’s possible hurdles with regulators and LSE shareholders, a mix of worries that has some seeing odds of the deal happening at less than half.

There is precedent for failure both in an out of the industry: along with LSE’s graveyard of past bidders, this year has seen the collapse of other big cross-border tie-ups. A rival is even planning ways to scupper the deal.

A key sticking point for Germans is the new merged company’s London headquarters. Even though Deutsche Boerse stockholders will get 54.4 percent of the new firm, the German Kengeter will run it, and LSE’s CEO Xavier Rolet has agreed to step down, it’s an issue.

“We don’t have anything against the deal itself, just the location of the headquarters,” Ulrich Caspar, a lawmaker in the Hesse state parliament, said in an interview earlier this month. Hesse provides key licensing for exchange activities. “This time round, we also expect this idea to fail,” he said, pointing to Deutsche Boerse’s previous two previous unsuccessful attempts to buy its London rival.”

‘A Good Thing’

Not all are opposed to the takeover. Prime Minister David Cameron in March called the plan for a London headquarters “a good thing, and very welcome.” And Frankfurt Main Finance, which represents Frankfurt’s financial community, has lauded the deal as a euro-area anchor.

The the tie-up would benefit the European financial system, says Ben Kelly, an event-driven analyst at Louis Capital Markets who has been following the deal closely. Though opposition, he says, is understandable.

“There is a transition from clunky old school to new, technology-driven processes and it may well be that some feel marginalized in many ways as exchanges have to evolve and centralize to compete globally now,” Kelly said in an e-mail.

The industry landscape is adding urgency. Deutsche Boerse, compared with the large U.S. and Chinese competitors, has fallen so far behind, Kengeter has said, that he urgently needs to act.

“If we don’t bulk up rapidly, then the company will at some point be so weak that it can no longer act but only react,” Kengeter told Manager Magazine last month. “Otherwise we soon will no longer be able to fulfill its public mandate of ensuring access to the capital markets for the German economy. Not to mention, our mandate of creating value for our shareholders.”

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