Deutsche Boerse AG and London Stock Exchange Group PLC (LSE) have agreed to merge, a deal that would create a titan of European trading as long as rival suitors do not upend the agreement and regulators give it their blessing.
LSE’s equity holders are to own 45.6 percent of the enlarged group, while Deutsche Boerse stockholders are to get the remaining 54.4 percent, a statement said yesterday. The two companies announced on Feb. 23 that they were negotiating a deal. The companies are valued at US$30.5 billion.
“They’re being very, very careful to position this as a merger and a merger of equals,” said Scott Moeller, a professor of corporate finance at London’s Cass Business School and a former investment banker. “It’s very close to being what a textbook merger of equals would look like.”
The companies predicted they would have cost savings, or synergies, of 450 million euros (US$499 million) each year after the deal is completed. Companies typically have to spend double their forecast annual savings from synergies in the first year or two of the deal. That means they have to come up with cash to save money later on.
This is the third time that the German exchange group has sought to buy LSE since the turn of the century. Previous attempts failed in 2000 and 2005. The agreed tie-up between the London and Frankfurt-based firms is also the largest deal between market operators since Intercontinental Exchange Inc bought NYSE Euronext in November 2013.
The merged entity would jump to the top ranks of exchange operators, joining CME Group Inc, Intercontinental Exchange and Hong Kong Exchanges & Clearing Ltd. The transaction could be derailed by competition concerns and it might also have to survive bids from other major exchange companies. Intercontinental Exchange, which is known as ICE, is contemplating making a higher offer for LSE.
The Anglo-German alliance would have a dominant position in Europe from which to expand into both Asia and the US. It would be a powerhouse for clearing listed derivatives in Europe and over-the-counter contracts. The Euro STOXX 50 Index, the FTSE 100 Index and the DAX Index would be under one roof.
The chief executive officers have so far succeeded where their predecessors failed at least twice previously. The dealmakers, Deutsche Boerse chief Carsten Kengeter and LSE chief Xavier Rolet, share a Wall Street pedigree with stints at Goldman Sachs Group Inc. Kengeter is to be chief executive officer of the combined company, while Rolet would step away.
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