LSE and Deutsche Börse finalise merger details

Mar 17th, 2016 | By | Category: ETF and Index News

London Stock Exchange Group (LSEG) and Deutsche Börse AG (DBAG) have agreed on the terms of a recommended all-share merger of equals of LSEG and DBAG. The announcement follows talks in February over the potential merger of the two businesses.

London Stock Exchange and Deutsche Börse finalise merger details

ETF trading hubs LSE and Deutsche Boerse finalise details of merger agreement.

The merger will see a new UK holding company created called “UK TopCo”, which will acquire LSEG by way of a scheme of arrangement and will acquire DBAG by making a securities exchange offer to all shareholders of DBAG.

Under the terms of the merger, LSEG shareholders will be entitled to receive 0.4421 UK TopCo shares in exchange for each LSEG share, and DBAG shareholders will be entitled to receive one UK TopCo share in exchange for each DBAG share. Assuming 100% acceptance, LSEG shareholders and DBAG shareholders will own 45.6% and 54.4%, respectively of UK TopCo on a fully diluted basis.

UK TopCo has been incorporated in the UK and will have a unitary board with equal representation from LSEG and DBAG. LSEG will maintain a one-tier-board system, while DBAG will maintain a two-tier-board system subject to applicable co-determination rules.

Xavier Rolet, CEO of LSEG, said in a statement: “We are creating an industry-defining combination, which will be a leading global market infrastructure business, very well positioned to create new benefits and efficiencies for our customers and increase value for our shareholders. Our highly complementary businesses will accelerate growth. Our shareholders will also benefit from substantial cost and revenue synergies. The combined group will continue to be fully committed to the real economy, by supporting companies, including the 23 million SMEs across Europe that drive economic growth and job creation. We will create a European leader in global markets infrastructure.”

Carsten Kengeter, CEO of DBAG, added: “Strengthening the link between the two leading financial cities of Europe, Frankfurt and London, and building a network across Europe with Luxemburg, Paris and Milan will strengthen European capital markets. It is the logical evolution for our companies in a fundamentally changing industry. As a combined group we will create a European player that will compete on a global basis. Shareholders will have an opportunity to benefit from this industry defining and value enhancing combination through the execution of an accelerated growth strategy and the realisation of cost and revenue synergies. It brings together two of the most respected and successful market infrastructure providers in the world to lead the way in European capital markets and set the benchmark for further growth and best-in-class services.”

The finalisation of the merger is conditional on receiving competition clearance from the relevant authorities in the European Union, the United States and Russia. There will also be formal regulatory approval and notification requirements in a number of jurisdictions, including Germany, the UK, France, Luxembourg, Italy and the US.

LSEG and DBAG have also announced the establishment of a Referendum Committee, composed of three members from each company, whose purpose is to consider the ramifications of any vote for the UK to leave the European Union. The groups recognise that a decision by the UK electorate to leave the European Union may undermine the current Capital Markets Union project, which seeks to remove barriers to the free flow of capital in Europe. Until the result of the upcoming referendum is known, the merger will proceed on the basis that existing regulatory and political structures will remain in place.

According to data from the Deutsche Bank ETF Annual Review and Outlook, the LSE held 32.4% of ETF exchange trading market share in Europe last year, while Borsa Italiana had 10.8% – a combined total for the LSEG of 43.2%. Deutsche Boerse had a market share of 24.4% in 2015. If a merger were to take place it could see a combined market share in on-exchange ETF trading of 66.8% in Europe.

It is currently expected that the merger will be completed by the end of 2016 or during Q1 2017.


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