Deutsche Boerse and LSE surge on confirmation of merger talks

The London Stock Exchange has confirmed earlier reports that it is in discussions with Deutsche Boerse about a potential merger of equals of the two businesses.

The announcement followed a Reuters report citing a person familiar with the matter as saying the talks are at an early stage.

LSE said the potential deal would be structured as an all-share merger of equals under a new holding company.

Under the terms of the potential merger, LSE shareholders would receive 0.4421 new shares in exchange for each LSE share and Deutsche Boerse holders would get one new share in exchange for each DB share.

This would mean Deutsche Boerse shareholders would hold 54.4% while LSE shareholders would have a 45.6% stake in the combined group.

“The boards believe that the potential merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group,” LSE said.

“The combination of LSE and Deutsche Boerse's complementary growth strategies, products, services and geographic footprint would be expected to deliver an enhanced ability to provide a full service offering to customers on a global basis.”

All key businesses of the UK and German exchanges would continue to operate under their current brand names and the existing regulatory framework of all regulated entities within the combined group would remain unchanged.

Before LSE had confirmed the reports, UBS said the news was “a big surprise, especially as there is significant market dominance between the two - especially in the clearing of ETFs in Europe”.

“So this is unlikely to be approved by the EU Competition Commission unless the merged entity spins off a couple of businesses to reduce market dominance. Strategically, a deal would make sense for both and would give LSE access to custodian services where DB1 is very strong.”

UBS rates Deutsche Boerse at ‘buy’ and LSE at ‘neutral’.

At 1403 GMT, Deutsche Boerse shares were up 6.1% to €81.00 while LSE shares were up 15% to 2,660p.