German Doubts on Deutsche Boerse Deal Grow as Brexit Fears Mount

  • Opposition centers on location of holding company headquarters
  • Merger referendum committee in contact with governments

German lawmakers are increasingly reluctant to see the merger of Deutsche Boerse AG and London Stock Exchange Group Plc go ahead as planned if Britain decides to leave the European Union.

The plan for a London headquarters would be untenable if Britain decides in a June 23 referendum to leave the EU, and the complex regulatory issues would mean the whole merger proposal will have to be re-assessed, according to legislators interviewed by Bloomberg. Five of the last six published polls have shown the “Leave” camp ahead of those favoring to stay.

“If circumstances change as a result of the vote, the merger decision, and especially the location of the holding company, will have to be scrutinized,” said Lothar Binding, the spokesman for financial policy for the Social Democratic Party, the junior partner in Chancellor Angela Merkel’s government. “You can’t take a decision beforehand and then simply keep on going as planned in such an event.”

Pressing Ahead

Spokesmen for Deutsche Boerse and LSE declined to comment. 

The companies are pressing ahead with the combination, with LSE shareholder meetings required in connection with the deal and a deadline for Deutsche Boerse shareholders to accept the offer set for July 4 and July 12, respectively. A referendum committee set up by the two companies has initiated discussions with the governments of Germany, the U.K., France and Italy, according to the Feb. 26 publication of the intention to merge.

While Deutsche Boerse would be the larger partner with 54 percent and Chief Executive Officer Carsten Kengeter would lead the new company, the deal is structured as an all-share merger of equals under a London-based holding subject to U.K. law. Each company would become subsidiaries of the combined group subject to regulations in their respective domiciles, including Deutsche Boerse’s Frankfurt-based Eurex derivatives exchange.

The complex regulatory issues would raise fundamental questions about the structure of the deal if the U.K. were to leave the EU, said Elmar Brok, a member of the European Parliament who is also on the executive committee of Merkel’s Christian Democratic Union party.

‘New Realities’

The merger plan will have to be adjusted for “new realities” in the event of a Brexit, Kengeter said in a June 2 interview published in German business newspaper Handelsblatt, when asked whether the location of the holding company headquarters could be renegotiated if the U.K. were to leave.

While the government of the German state of Hesse, as overseer of the Frankfurt Stock Exchange, holds a veto on the deal, the federal government wields influence through the referendum committee. Brok and Binding are senior voices in the two main parties that govern Germany.

Kengeter met with Finance Minister Wolfgang Schaeuble in Berlin on May 13 while Andreas Preuss, deputy CEO of Deutsche Boerse, has talked with economy ministry representatives in recent weeks to discuss the merger plan, according to a government official.

While the government is generally open to the deal, recognizing the increased competitiveness this would create for Deutsche Boerse, it will be difficult to retain the planned holding structure in the event of a Brexit, said the official, who asked not to be identified discussing the government’s thinking.

Before it's here, it's on the Bloomberg Terminal.