Deutsche Boerse CEO Office Raided for Trade Before LSE Dealby , , and
German prosecutors investigating trade placed on Dec. 14, 2015
Company says transaction was part of approved pay program
German authorities raided Deutsche Boerse AG Chief Executive Officer Carsten Kengeter’s home and office Wednesday as they investigate his purchase of company stock just two months before the exchange disclosed negotiations to acquire London Stock Exchange Group Plc.
Frankfurt prosecutors are looking into the December 2015 purchase of shares of the German exchange when Kengeter knew non-public information about the talks, according to a statement Thursday from the investigators. It emerged on Feb. 23, 2016, that takeover discussions with LSE were underway. Deutsche Boerse’s shares rallied 6.7 percent between the dates.
While analysts and traders don’t expect the probe to derail the $12 billion takeover, the investigation is yet another unwelcome distraction since the deal became public. Executives at the companies have endured June’s unexpected Brexit vote result, as well as objections from officials in France and Germany.
“It would be somewhat extraordinary for such a stock purchase not to have been thoroughly vetted,” said Ian Davey, head of Scorpeo Analytics, a corporate-event advisory firm in London. He noted that the German firm’s supervisory board approved the purchase. “In my view, this has a very low probability of preventing the deal closing.”
The timing of the CEO’s investment is being questioned because the leadership of the exchanges first broached a possible merger in July or August 2015, months before his purchase, the prosecutors said.
Deutsche Boerse shares declined 1.3 percent Thursday in Frankfurt trading.
Deutsche Boerse Chairman Joachim Faber said the allegations have no basis and that the companies didn’t agree to enter into negotiations until the second half of January 2016. The stock transaction was part of a board-approved compensation program, Deutsche Boerse said Wednesday, adding that the company and Kengeter will “fully cooperate with the public prosecutor.”
“We look forward to working towards completion of our proposed merger,” LSE said in an e-mailed statement.
A share-purchase program can be a valid defense if company lawyers can show that the suspect decided to purchase the stock long before knowing the insider information, according to Andre-M. Szesny, an attorney at Heuking Kuehn Lueer Wojtek in Dusseldorf. The transaction date then doesn’t play a role -- rather, the date of the decision is key, he said.
“Insider trading is a very personal offense,” he said. “I don’t think that the probe will have relevant effect on the regulatory assessment of Deutsche Boerse. It’s too removed from what they are actually doing."
The fallout for Kengeter could be severe, however, should the allegations lead to a conviction. Offenses of the magnitude German prosecutors are investigating could result in prison, and force the executive to give up any gains from the purchase, Szesny said.
Kengeter’s office in Eschborn and his Frankfurt home were searched Wednesday. Investigators are seeking to understand how the negotiations proceeded until Feb. 23, 2016, when the companies disclosed that talks had been held in an ad-hoc statement following market speculation.
The probe comes as Deutsche Boerse and LSE are in a decisive phase in their effort to create Europe’s dominant exchange operator, a feat that has eluded previous CEOs. European Union competition watchdogs, who blocked a similar merger attempt in 2012, are likely to make a decision on the deal next month.
The takeover has already been approved by shareholders, but it still faces opposition in Germany over a plan to locate the combined company’s headquarters in London.
The opening date of discussions between Kengeter and LSE CEO Xavier Rolet hasn’t been officially disclosed. Rolet said in a Telegraph interview last year that his counterpart reached out to him after becoming head of the German exchange in June 2015, but formal discussions began later. The confidentiality agreement between the companies was dated Jan. 19, 2016, according to a March prospectus.
The supervisory board in 2015 granted Kengeter a one-time opportunity to purchase up to 4.5 million euro ($4.9 million) worth of shares that he’ll have to hold through 2019, according to the company’s annual report. Kengeter bought 60,000 shares for 4.5 million euros on Dec. 14, 2015, under the plan, data compiled by Bloomberg show.