Market mergers at risk

Politics is again blocking attempts at consolidation among stock exchanges

Attention was beginning to shift to London, the hotly contested competition for its up for sale metal exchange, and perhaps even its stock exchange yesterday, as Deutsche Börse began a furious rearguard action to save its attempt to merge with the New York Stock Exchange.

With regulators saying the Deutsche NYSE deal should be blocked (to London's relief) on competition grounds, the only option open to the two companies' chief executives, Reto Francioni and Duncan Niederauer, is a direct appeal to EU commissioners in the hope they will ignore their own watchdogs.

The two men – who have been meeting in New York – will try to sell the deal to them as creating an EU champion capable of taking on the Chicago Mercantile Exchange, which enjoys a derivatives monopoly in the US.

They will likely fail. It is extraordinarily rare for commissioners to overturn such a ruling. And even a finely honed political company such as Deutsche will find its work cut out given that Germany's attempt to force fiscal prudence on the union isn't making it hugely popular.

If, as expected, the deal fails, it will join the London Stock Exchange's (LSE's) attempt to pull off a merger with Toronto and Sydney's proposed tie up Singapore in the dustbin of history.

"It does look as if the whole thing has stalled, perhaps for some time," said one exchange watcher. "It might take years for things to get going again."

Politics as much as anything else killed off the latter deal, and helped ruin the former given the motivations of some of Toronto's more nationalistic shareholders whose votes stopped the merger from clearing the 75 per cent shareholder approval hurdle.

But Martin Abbott, chief executive of the London Metal Exchange (LME), doesn't think deals are dead. Yesterday he talked of a "very healthy number of bidders" interested in meeting a price tag likely to hit £1bn for his exchange.

To bolster his case he published data showing volume jumped 22 per cent last year to a record 146.6 million lots, with the value of trades up 32.8 per cent to $15.4 trillion (£10 trillion). With numbers like that, maybe the exchange has managed to make more than the pitiful £12.5m profit it generated in 2010.

But there is another reading on the LME's popularity: exchange deals are so difficult to do that when one is willing and able to open its doors to a suitor, everyone wants in on the action.

Among the 15 or so companies involved in the chase and under the scrutiny of the LME's board next month are thought to be Icap, the LSE, several Asian exchanges and even the Chicago Merchantile Exchange.

Although the LME has about 80 per cent of global futures trading in metals, the exchange is a unique property and it is unlikely that a deal will be killed off on the same grounds that the Deutsche NYSE deal has apparently been shot down.

The two, believe EU regulators, will dominate derivatives trading to an unhealthy degree. Mr Niederauer says this analysis is "fundamentally flawed" not least because it fails to include the substantial "over the counter" derivatives market (which the EU would ironically like to see brought under the wings of an exchange or two). Icap, the LSE and other rivals think otherwise and have vociferously objected.

The two unlucky chief executives will likely point to the Chicago Mercantile Exchange's monopoly in the US, arguing that Europe needs a "champion" to compete with it. Rivals say that isn't the point: they argue the merged company (it was never given a name) would be an over-mighty silo with the power to close the door on them.

With the deal in its death throes, what next for the two prospective partners?

Their merger is as much defensive as anything else, particularly for the NYSE, which still boasts an antiquated, open outcry trading floor and wants to avoid becoming an irrelevance.

Deutsche remains a big beast with a big derivatives business (in the form of Eurex). But it has repeatedly failed to pull off deals. It has twice made a run at the LSE, and put in a failed bid for Liffe, the London futures exchange, before the latter's takeover by Euronext. These are just the more famous flops.

Andreas Preuss, the head of Eurex, is due in London towards the end of the month, but probably won't say much.

Could either one, however, look to the LSE? It has Europe's largest cash equities market, but is no more than a medium-sized group in global terms with a need to bulk up its derivatives offering. The LSE is pursuing a tie up with LCH. Clearnet, which sits between buyers and sellers and guarantees trades if one side blows up. That will likely escape regulatory sanction (Deutsche might huff and puff, but it owns a similar operation).

It is also listed in an open market where political considerations that hamper deals elsewhere don't appear to hold as much sway.

The trouble is the LSE has a canny chief executive in Xavier Rolet who isn't keen to sell. Relations with Deutsche are poor, and the LSE has twice successfully rebuffed hostile approaches from the US (both tabled by the Nasdaq).

Perhaps the only avenue open to a potential suitor is the LME. The LSE's failure to buy Liffe crippled it strategically. The LME isn't that sort of prize, but there isn't much left after it has gone.

With an auction process in full swing, if Mr Rolet is tempted to overpay it could open an opportunity for a rival to swoop. But Mr Rolet knows this and is too clever to have entered the LME race without having sounded out his powerful Asian shareholders first.

The LME may really be the last game in town, at least for now.

Sport
Laura Trott with her gold
Commonwealth GamesJust 48 hours earlier cyclist was under the care of a doctor
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
Arts and Entertainment
Peter Griffin holds forth in The Simpsons Family Guy crossover episode
arts + ents
News
Orville and Keith Harris. He covered up his condition by getting people to read out scripts to him
People
PROMOTED VIDEO
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
Arts and Entertainment
Gal Gadot as Wonder Woman
arts + entsFilmmaker posted a picture of Israeli actress Gal Gadot on Twitter
Sport
Vincenzo Nibali rides into Paris on the final stage of the 2014 Tour de France
Tour de FranceVincenzo Nibali is first Italian winner since Marco Pantani in 1998
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
arts + ents
Arts and Entertainment
Pedro Pascal gives a weird look at the camera in the blooper reel
arts + entsPrince Oberyn nearly sets himself on fire with a flaming torch
News
Danny Nickerson, 6, has received 15,000 cards and presents from well-wishers around the world
newsDanny loves to see his name on paper, so his mother put out a request for cards - it went viral
Arts and Entertainment
Zoe Saldana stars in this summer's big hope Guardians of the Galaxy
filmHollywood's summer blockbusters are no longer money-spinners
Sport
Red Bull Racing's Australian driver Daniel Ricciardo (C) celebrates with Scuderia Ferrari's Spanish driver Fernando Alonso (L) and Mercedes' British driver Lewis Hamilton
sport
Arts and Entertainment
comedy
Arts and Entertainment
Public vote: Art Everywhere poster in a bus shelter featuring John Hoyland
art
Arts and Entertainment
Judd Apatow’s make-it-up-as-you-go-along approach is ideal for comedies about stoners and slackers slouching towards adulthood
filmComedy was dominated by the romcom at its most insufferable
Sport
Tour de France competitor Bartosz Huzarski’s legs have highlighted the gruelling nature of the race, after he posted a picture on Facebook showing extremely prominent veins stretching from his feet and all the way up his legs
Commonwealth Games
Life and Style
Elle Kaye demonstrates the art of taxidermy
food + drinkFood revolution taken a step further in new ‘edible taxidermy’ class
News
A rub on the tummy sprang Casey back to life
video
Sport
Halsall broke her personal best in the 50m butterfly
Commonwealth GamesEnglish swimmer is reborn after disastrous time at London 2012
Arts and Entertainment
O'Shaughnessy pictured at the Unicorn Theatre in London
tvFiona O'Shaughnessy explains where she ends and her strange and wonderful character begins
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Workers in Seattle are paid 100 times as much as workers in Bangladesh
fashionSeattle company lets customers create their own clothes, then click 'buy' and wait for delivery
Arts and Entertainment
Red Bastard: Where self-realisation is delivered through monstrous clowning and audience interaction
comedy
Arts and Entertainment
booksForget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Voices
The Express offices in the 1930s when writers (such as Orwell) were paid around £2 weekly
voicesWebsites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Life and Style
A cut above: Katy Guest at The Ginger Pig
food + drinkThe Ginger Pig's hands-on approach to primary cuts
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Application Support Analyst / Junior SQL Server DBA

£40000 - £45000 per annum: Ashdown Group: An established professional services...

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried