LSE and Deutsche Börse begin merger talks for a third time

London and German stock exchanges rekindle old deal negotiations

Shareholders in the London Stock Exchange (pictured) would own 45.6 per cent of the new group under the proposed deal (Sang Tan/AP)

The London Stock Exchange is back in talks to merge with Germany’s Deutsche Börse in a deal that would create one of the biggest exchange owners in the world and inevitably lead to speculation that the British business is preparing for a possible post-Brexit world.

A merger was last attempted back in 2005 before current LSE chief executive Xavier Rolet arrived and hugely strengthened the London exchange’s business with a spree of acquisitions. There was also an earlier attempted deal between the pair in 2000. That was scuppered when Sweden’s OM Exchange upset the process with a hostile takeover bid for the LSE.

The proposed deal, coming just days after Boris Johnson boosted the Brexit camp’s hopes of success in the June referendum, was seen in some quarters as evidence of the City’s financial services hub preparing for life outside the EU trading agreement.

Many of the City’s big investment banks have warned that they may need to decamp to continental capitals in order to continue financial trading within the EU system.

Mr Rolet was among the signatories to an open letter from corporate bosses urging Britain to remain in the EU. However, despite fevered speculation about the impact on his thinking of the Brexit threat, the reality is that the LSE already has a big operation on the Continent through its ownership of Borsa Italiana, which it bought in 2007.

The company later merged with the Toronto Stock Exchange to add to its presence outside the UK.

While Brexit may have affected the timing of the announcement of the talks, analysts pointed out that Mr Rolet has long advocated further consolidation in the industry. He has repeatedly said financial market operators should merge into a small handful of big players, and that it was crucial one of those should be based in the UK.

Yet the proposed deal would turn the LSE into the minor partner in the business, with its shareholders owning 45.6 per cent of the enlarged group.

The transaction would put the combined company in among global frontrunners such as the Intercontinental Exchange, which acquired the London Liffe futures market when it bought NYSE Euronext in 2013, and Chicago’s CME, the world’s biggest commodities exchange.

Describing the proposed deal as a “merger of equals”, the companies said in a Stock Exchange statement that they would strengthen each other in an “industry-defining” combination that would make it easier for customers to clear cross-border derivatives trades.

Shares in both companies soared, with the LSE ending up 317p or 13.71 per cent at 2630p.

Both companies are using boutique advisory firms rather than big investment banks, with London-based Robey Warshaw advising the LSE, and Perella Weinberg Partners assisting the exchange.