London Stock Exchange expects the EU to block its £21bn mega-merger with Deutsche Boerse
The London Stock Exchange’s controversial £21bn merger with Deutsche Boerse was thrown into chaos late on Sunday night, after it emerged that regulators in Brussels are likely to block the deal.
Shares in the LSE tumbled by more than three per cent this morning after it revealed in a bombshell statement to the market that it has been in dispute with the European Commission over its majority stake in an Italian bond trading platform.
The EU "unexpectedly raised new concerns" on 16 February related to the LSE’s ownership of MTS SpA, the statement said.
The stock exchange, headed up by Xavier Rolet, added that it cannot agree to Brussels' request to divest MTS. The Commission had set a deadline of midday today for the LSE to submit a new remedy proposal.
With no settlement in sight, the LSE now expects the deal to be blocked.
"Taking all relevant factors into account, and acting in the best interests of shareholders, the London Stock Exchange board today concluded that it could not commit to the divestment of MTS," it said.
"Based on the Commission's current position, London Stock Exchange Group believes that the Commission is unlikely to provide clearance for the merger."
Read more: Top City grandees and politicians come out against London Stock Exchange merger
The LSE's statement says it will continue to speak to other regulators about the deal, but suggests the company is prepared to see the deal die.
"The LSE board is highly confident in the strength of LSE’s business, strategy and prospects on a stand alone basis, under its strong management team led by chief executive Xavier Rolet," it says.
The LSE had agreed to sell its LCH SA clearing business to rival Euro-next as part of the deal. However, it believes a sale of MTS would face its own regulatory hurdles, especially from the Italian government.
“It is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSEG were to give the commitment,” the statement said.
Last night reaction to the news was mixed. Entrepreneur Luke Johnson, who has opposed the merger, said: "I think it’s good news. I think it’s important Britain retains control of its stock exchange."
Read more: German minister rules out HQ compromise in London Stock Exchange-Deutsche Boerse talks
Conservative MP Jacob Rees Mogg, who sits on the Treasury Select Committee, said: "Although I am generally in favour of cross-border deals I am aware that there were growing concerns about the deal and fears that it could lead to business moving to Germany to the detriment of the City. This concern is removed if the EU’s decision turns out to be a veto without undermining the UK’s reputation for being open to business."
Some City analysts have said a US exchange could pounce for the LSE, if the deal with Deutsche Boerse collapses. However, Numis analyst Jonathan Goslin told City PM any suitors may be scared off. “You’re not going to want to go down this route if you’re not going to get it done,” he said.