Ger­man re­sis­tance grows to LSE merger

The Pak Banker - - MARKETS/SPORTS -

FRANK­FURT:

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

a

vo­cal

op­po­nent

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.

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