German resistance grows to LSE merger
The London Stock Exchange's merger with Deutsche Boerse is coming under fire in Germany, with politicians and industry veterans speaking out against the deal amid fears that Frankfurt's status as a financial hub will be eroded. As both exchanges canvass investors about their £21bn merger, the decision to move the combined group's headquarters to London while giving the German bourse's chief executive, Carsten Kengeter, the top job has been criticised.
Manfred Zaß, a former Deutsche Boerse director, has warned thatthe compromises contained within the "merger of equals" could damage Frankfurt's standing, despite Mr Kengeter's claims that the deal would safeguard the city while enabling both the UK and Germany to compete in global markets.
Mr Zass, who left the bourse after its failed bid to buy the LSE in 2005, told a German magazine: "We should not be naïve… With respect, if you know the push and pull behind such a merger, it sounds more like an investment banker fairy story.
"The supposed parity - the boss here, the domicile there - creates a recognisably lopsided Frankfurt," he told a German magazine.
Deutsche Boerse's home district is also lobbying to retain the exchange's head offices. Ulrich Caspar, who sits in the regional parliament in Hesse, has said he harbours concerns about the majority of the enlarged group's shareholder base coming from English-speaking countries. "It is the task of the German, Hesse and Frankfurter politicians to ensure that the stock market can continue to develop," he told the German media.
Mr Caspar was
of Deutsche Boerse's ultimately unsuccessful plans to merge with NYSE in 2012, part of a global wave of consolidation among financial market operators. Wilhelm Speckhardt, former mayor of the Frankfurt suburb of Eschborn, has described the plan to shift the holding company to London as "an unimaginable catastrophe for the town".
Unease among British politicians about the tie-up saw several Commons Treasury committee members suggesting last week that they will quiz executives on the deal.
LSE shareholders will own 45.6pc of the group after the merger, while Deutsche Boerse would get 54.4pc. Xavier Rolet, the boss of the London bourse, will retire as part of the compromise to make the deal an even split.
They expect to save €450m a year, or 20pc of operational costs, by merging overlapping parts of the businesses, on top of ongoing savings programmes.
However, the deal could be interrupted by a rival bid. The American group Intercontinental Exchange has expressed an interest in making an offer for the LSE, while the Chicago Mercantile Exchange and the Hong Kong stock exchange have also been linked to bids.
Meanwhile, advisers to Deutsche Boerse and LSE are said to be looking at the same structure, involving a Dutch foundation called a stichting, that was set up in NYSE's 2007 takeover of Euronext to contain the risk from new US law, to avoid possible regulatory problems in the event of a Brexit. Ferdinand Mason of Jones Day, who advised regulators on the implementation of the stichting at the time of the NYSE Euronext takeover, said: "Setting up a stichting would protect companies listed on the LSE and the exchange itself from any overspill of a change in EU regulations.