The London Stock Exchange Group (LSEG) late on Sunday said that European regulators were unlikely to approve its merger with Deutsche Borse AG, which would have created a European heavyweight in a rapidly consolidating industry.
The London exchange said regulators at the European Commission had made the sale of its majority stake in MTS, an electronic platform for trading European government bonds and other fixed income products, a condition for approval of the Deutsche Borse transaction.
The London exchange said that was unpalatable, calling the remedy “disproportionate.”
“Taking all relevant factors into account and acting in the best interests of shareholders, the LSEG board today concluded that it could not commit to the divestment of MTS,” the London exchange said in a news release. “Based on the commission’s current position, LSEG believes that the commission is unlikely to provide clearance for the merger.”
The London Stock Exchange and Deutsche Borse had hoped to create a potential European champion by combining stock exchanges in Britain, Germany and Italy, as well as several of Europe’s largest clearinghouses.
The combined company would have been Europe’s largest operator of stock markets by far.
The exchanges agreed in March last year to a merger and shareholders from the two exchanges approved the deal in July.
Intercontinental Exchange Inc, the owner of the New York Stock Exchange, had been seen as a potential rival in the deal, but in May opted not to pursue a counteroffer.
In September, European regulators opened an investigation into the merger, looking at the effect it could have on competition in financial markets.
The clearing of trades was one of several areas being explored in the inquiry.
In hopes of winning approval for the deal, the London exchange said in December that it was in exclusive talks with Euronext over the sale of LCH SA, the French operating arm of the LCH.Clearnet Group Ltd.
The London exchange said at the time that it was seeking to “address proactively antitrust concerns raised by the European Commission.”
Euronext last month said it had signed a binding offer of 510 million euros (US$538 million) for all of LCH SA.
The sale was contingent on the approval of the Deutsche Borse-London Stock Exchange transaction by European regulators.
The London exchange said that the European Commission had unexpectedly raised new concerns this month about the sale of LCH SA in relation to access to bond trading.
“The merger parties presented an improved and clear-cut structural remedy to complement the divestment of LCH SA, which addressed the commission’s specific concerns,” the London exchange said. “This improved remedy was, in the parties’ view, effective and capable of ready implementation, but it was rejected by the commission.”
The London exchange said any change of control of MTS would require approval by regulators in Italy and would trigger additional regulatory processes in Belgium, Britain, France and the US.
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