The near collapse of the €29bn merger between the London Stock Exchange Group and Deutsche Börse was precipitated by the LSE’s decision to aggressively reject concessions demanded by Brussels without warning or consulting its German partner.
Both exchanges took turns apportioning blame to EU authorities and obstinate rivals on Monday, making clear the deal once touted as creating a European champion to challenge their larger US rivals was all but dead.
Although both sides blamed outsiders for the deal’s failure, people briefed on negotiations said the breakdown was precipitated by LSE, which resisted a last-minute demand from Brussels in a letter to antitrust regulators on Thursday, and then finally rejected late on Sunday after an all-day board meeting.
The UK exchange was unwilling to meet an unexpected demand to sell its 60 per cent stake in MTS, a small Italian bond trading venue, on concerns about its relationship with local regulators. Deutsche Börse was taken aback by LSE’s sharp turn, believing the business was divestible, said people close to the negotiations.
Executives and advisers now see little chance of the deal going through. “The politicians have got what they wanted,” said one angered party involved in the deal. “This is ultimately bad for Europe.”
The hardline view taken by LSE has led to accusations in Germany that the London exchange wanted out of the deal entirely and was using the demand by Brussels as an excuse. Hostility to the deal from politicians in the UK and Germany has risen since Britain voted to exit the EU.
“I was a bit surprised that the LSE was so inflexible about selling MTS, because if you look at their financial statements, it doesn’t contribute a huge amount to their profits,” said Lothar Binding, financial expert for Germany’s Social Democrats. “It seems to me more like an excuse.”
Both sides were surprised by a sudden demand two weeks ago by EU regulators to divest MTS, which the LSE admitted was only a minor contributor to group revenues. The issue had not come up in more than four months of talks, negotiators said.
One senior executive involved in the talks blamed the late Brussels intervention on intensive lobbying by France’s Euronext, which stood ready to purchase MTS. Euronext was already in line to acquire LSE’s French clearing arm, and was lobbying heavily to get more fixed-income trading flow from MTS.
Brussels sided with Euronext, which feared that the potential €510m disposal of the clearing arm alone could be undermined without the MTS assets. The collapse of this deal means Euronext will probably lose out on acquiring the LSE’s French clearing arm.
The politicians have got what they wanted. This is ultimately bad for Europe.
Brussels had indicated at the start of the month that it had few concerns with the deal, but political criticism sharpened in Britain as German politicians demanded the holding company of the combined group be moved from London to Frankfurt. Tory MP Bill Cash, a prominent Eurosceptic in Britain, said it was “slam dunk that this deal is not in the national interest”.
The LSE took a calculated risk to reject Brussels’ demands after it realised that Italian authorities would never have approved the MTS sale, leading to a break with a regulator of a substantial portion of LSE’s standalone business. That accentuated divisions between the two parties in the final days, said three people briefed on the discussions.
The LSE letter to Brussels set out its concerns with the European Commission’s requests and indicated that the LSE had been put in an “immensely” difficult position.
It questioned whether it could meet a Monday deadline imposed by Brussels, according to two people who have seen the contents of the letter. Deutsche Börse was not a signatory and had not been in contact with the commission, the people said.
Shares in the LSE fell 1.1 per cent, while Deutsche Börse declined 3.8 per cent.
Additional reporting by Arash Massoudi
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