Brexit Vote Threatens Deutsche Boerse Plan to Take Over LSE

  • LSE equity holders to own 45.8% of the enlarged company
  • London exchange’s shareholders to vote on the deal on July 4

Britain’s decision to leave the European Union may threaten the planned merger between Deutsche Boerse AG and London Stock Exchange Group Plc. Shares in both companies tumbled.

The 8.6 percent plunge in the U.K. exchange’s shares on Friday could make the existing terms of the all-stock tie-up untenable, said Ben Kelly, an analyst at Louis Capital Markets. The transaction is among the biggest deals between European companies right now, and is faced with other uncertainties including mounting criticism in Germany about the combined company’s proposed headquarters in London. Potential rival suitors may now also be less likely to make a bid for LSE.

“Not only do you have increased risk of the deal breaking, you also have the argument that a counterbid is even less likely,” London-based Kelly said in an interview. “It also could be argued that Deutsche Boerse would be overpaying for a post-Leave-vote LSE. This wouldn’t help, as it would lend credence to local opposition of the deal.”

German opposition to having the holding company based in London, in particular, has increased the risk of the plans collapsing, according to advisers working on the deal, who asked not to be identified because talks are private. Regulators in Germany and Brussels as well as shareholders could also grow more hesitant to approve the deal after the Brexit, they said.

LSE is unlikely to accept any proposals to move the combined company to Germany, one of the people said.

Deutsche Boerse’s employee representatives reiterated calls for Frankfurt to be the legal headquarters of the planned venture with the LSE, according to a report from DPA.

"We are not calling for the merger to end, but that the main headquarters has to move to Frankfurt," Jutta Stuhlfauth, the chair of the works council, said in the DPA article. It would be "absurd to move headquarters to London" when the U.K. is leaving the EU, she said.

LSE’s shares slumped 8.6 percent to 2,500 pence in London, giving the exchange operator a market capitalization of about $12 billion. Deutsche Boerse’s stock dropped 9.3 percent to 74.09 euros in Frankfurt, valuing the company at almost $16 billion.

The companies have long said the takeover makes sense for them regardless of the Brexit decision. Deutsche Boerse and LSE repeated that claim today.

“The decision of the U.K. to leave the EU makes it ever more important to maintain and foster ties between the U.K. and Europe,” Joachim Faber, chairman of Deutsche Boerse and chairman of the companies’ referendum committee, said in a statement. “We are convinced that the importance of the proposed combination of Deutsche Boerse and LSEG has increased even further for our customers and will provide benefits for them as well as our shareholders and other stakeholders.”

As it’s currently structured, LSE equity holders would own 45.8 percent of the enlarged group, while Deutsche Boerse stockholders would get the remaining 54.2 percent. LSE shareholders are scheduled to vote on the acquisition on July 4. Deutsche Boerse shareholders have until July 12 to tender their shares.

LSE and Deutsche Boerse had created a committee to advise their boards on the ramifications of a Brexit, saying the number of possible scenarios the combined firm faces is “impossible to model.”

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