German bid for LSE hits the buffers
Controversial merger faces competition probe
THE controversial German takeover of the London Stock Exchange could be blocked after competition authorities launched a formal probe into the deal.
Frankfurt-based Deutsche Boerse is seeking to seize control of the 215-yearold institution in a deal worth £21bn.
But yesterday the European Commission warned merging the two companies could ‘eliminate competition in a number of areas’, including trading in the giant bonds and derivatives markets.
Instead of giving the green light to the merger, it announced an ‘in-depth investigation’ which is set to last until the middle of next February.
The decision has given fresh hope to critics of the deal who say the UK should not be selling one of the crown jewels of the City of London to a foreign rival.
Both sides have tried to present the tie-up as a ‘merger of equals’, despite the fact that Deutsche shareholders will have the controlling stake and the combined operation will be run by German chief Carsten Kengeter, with LSE’s veteran boss Xavier Rolet stepping down.
There are fears that London will cede power, influence and jobs to Frankfurt, despite Deutsche’s promise to base the merged organisation in London.
The Brexit vote – deeply unpopular with Germany – has heightened such concerns.
But commissioner Margrethe Vestager yesterday said the EC was worried that the tie-up could break competition rules designed to prevent monopolies.
The EC said the proposed merger posed a potential threat to competition in several areas of financial markets. Deutsche Boerse and LSE both have massive businesses which clear trades, a key area of concern for regulators.
Vestager said: ‘Financial markets provide an essential function for the European economy. We must ensure that market participants continue to have access to financial market infrastructure on competitive terms.’
Observers believe the EC was never likely to simply wave through the deal, given its sheer scale and political importance. A deadline of February 13 has been set for the probe.
The decison was welcomed by those who view the marriage of the two firms as a power grab by Brussels. Tory grandee Sir Bill Cash last night reiterated his call for Business Secretary Greg Clark to block it. He said: ‘This extension makes it even more urgent that this is done.’
The investigation may be particularly unnerving for Deutsche, whose attempt to merge with the New york Stock Exchange was blocked by the EC in 2012.
In a desperate bid to secure of the approval of regulators, LSE said it was exploring plans to sell the French wing of its clearing house. But analysts said this was unlikely to be enough.
One of the most high-profile opponents of the deal welcomed the EC’s decision to scrutinise the takeover more closely.
City grandee and former Treasury minister Lord Paul Myners said the tie-up would create a larger and more risky business.
‘The deal raises profound concerns about industry concentration in clearing houses and in index construction,’ the crossbench peer said.
‘The issue around clearing houses is particularly important as they’re now potentially the weak link in ensuring systemic financial stability, and the only real justification for this proposal – other than the aggrandisement of management – is seriously reducing the amount of capital supporting financial transactions.
‘As proposed, this takeover of the London Stock Exchange poses an unacceptable increase in risk to the taxpayer.’