This Is Why There’s a Fight Brewing Over the London Stock Exchange
The London Stock Exchange Group Plc (LDNXF) showed Friday why there’s a takeover fight brewing over it.
The British-based group said its profits leaped last year and raised its dividend by over 20%, thanks to the strong performance of its clearing services and Russell Indexes, which it consolidated for the first time.
The group, which owns Borsa Italiana as well as the London Stock Exchange, reiterated that its proposed merger with Germany’s Deutsche Boerse AG had a ‘compelling’ logic and said detailed discussions were ongoing over a deal to create a pan-European trading house with substantial revenue and cost benefits.
LSE and Deutsche Boerse said last week they were in merger talks, although New York Stock Exchange owner Intercontinental Exchange (ICE) has raised the prospect of a bidding war by saying it was considering making a counter-offer.
Deutsche Boerse and LSE Group are making a third attempt at creating a European trading powerhouse to take on U.S. rivals encroaching on their turf.
Nearly 16 years after their first merger attempt, the London and Frankfurt exchanges are discussing an all-share deal giving Deutsche Boerse shareholders 54.4 percent of a new company and LSE shareholders 45.6 percent.
It would combine the LSE’s share-trading operation with the derivatives trading of Deutsche Boerse’s Eurex in a group worth almost $30 billion. It would give the companies similar scale to U.S. exchange ICE, which has taken a huge slice of the European derivatives markets.
LSE CEO Xavier Rolet, speaking to reporters on a conference call, promoted the potential tie-up as a true ‘merger of equals’, with a British-based holding company and a unitary board. But Rolet, who will step aside should the deal with Deutsche Boerse AG (DBOEY) succeed, would not comment on any prospective interest from ICE.
The LSE reported a 31 percent increase in full-year adjusted pretax profit to 643.4 million pounds ($910.8 million) from 491.7 million pounds a year earlier, just shy of analysts expectations. Revenue rose 78 percent to 2.28 billion pounds, short of forecasts for 2.396 billion pounds, according to Thomson Reuters I/B/E/S.
Regulatory concerns about the concentration of power in the hands of a few exchanges, along with nationalist wrangling, have hindered many cross-border deals in the sector.
LSE and Deutsche Boerse are already walking a political tight-rope between London and Frankfurt – trying to make sure both governments are on board with the deal, and that it would still make sense were Britain to leave the European Union.
But political and regulatory demands may be even more challenging if a non-European exchange tries to buy LSE.
Alongside ICE, CME Group (CME) is actively considering doing so, people familiar with the matter have said. Analysts suggested that Euronext NV ) and Hong Kong Exchanges and Clearing may also be interested.