Deutsche Boerse to Seek Destiny Outside Europe If LSE Bid Fails

  • Europe rivals too small, Asia not feasible, CEO Kengeter says
  • French uproar at LSE deal ‘deplorable,’ Kengeter says

Deutsche Boerse AG will seek its destiny outside Europe if its bid to form a regional powerhouse by combining with London Stock Exchange Group Plc fails, Chief Executive Officer Carsten Kengeter said.

LSE offers Deutsche Boerse the best opportunity to regain its position among global leaders in the industry, Kengeter told journalists in Frankfurt late on Monday. If the deal falls through, then another combination in Europe would not serve Deutsche Boerse’s purpose as the remaining peers in the region are too small, he said.

“It is my duty to lead Deutsche Boerse back to the top,” he said. “This merger proposal is one part of our growth strategy and not an end in itself.” Achieving Deutsche Boerse’s goals “by simply growing organically is extremely difficult, if not impossible,” the CEO said.

Kengeter, 49, at the behest of Deutsche Boerse’s supervisory board, began exploring possible combinations last year after taking the helm in June. The former investment banker studied “every combination that exists in the world” before deciding on a combination with LSE, he said. A deal with an Asian partner isn’t feasible, he said, adding that “the Asians don’t need us.”

Frankfurt Marketplace

Kengeter refuted suggestions that a deal with LSE would spur a demise of Frankfurt as a financial center, saying the German marketplace will get left behind if it doesn’t build a bridge to London.

“If we want to shape the global financial system on an equal footing, we have to strengthen the European marketplace,” he said. As home to the euro-area’s banking supervisor, the European Central Bank, Frankfurt is increasingly a “center of financial stability.”

If Deutsche Boerse and LSE fail to build a pan-European player “of our own design,” then Europe runs the risk of its market infrastructure becoming “externally controlled and externally regulated,” he said.

Kengeter is pressing ahead with the merger plan as a June 23 referendum on Britain’s future in the U.K. looms, an uncertainty that could keep U.S. competitors from pouncing on LSE. Atlanta-based Intercontinental Exchange Inc. abandoned a potential offer for LSE earlier this month. That step prohibits ICE from making an approach for six months under U.K. takeover rules.

Asked whether Deutsche Boerse could itself become a target, Kengeter said “It’s true that CME Group Inc. has a general interest” in Deutsche Boerse, “but I don’t see this manifesting itself at the moment.”

Kengeter called France’s criticism of the deal “deplorable.” On Monday, Bank of France Governor Francois Villeroy de Galhau said a Deutsche Boerse-LSE combination poses risks to financial stability.

Euronext NV, which runs exchanges in Paris, Amsterdam, Brussels and Lisbon, is evaluating how to create roadblocks to the merger because of concern the deal would marginalize its own role in European trading, people familiar with the matter said in April.

Paris Demise

Euronext was previously part of a bigger empire that included Liffe, a London-based derivatives exchange, and the New York Stock Exchange, both of which are now owned by ICE. Euronext was severed from those companies when it was spun off in a June 2014 IPO.

“It’s true that Paris has a fate behind it that can’t exactly be described as positive,” Kengeter said. “This is why we are pursuing a merger of equals.”

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