Adam Putz February 28, 2017
The €29 billion merger agreed to last year between the London Stock Exchange (LON: LSE) and Deutsche Börse (ETR: DB1) has stalled out and appears set to fall apart entirely after the LSE recently rejected a key remedy required by the EU’s antitrust review: Divesting its MTS fixed-income trading business in Italy.
The LSE had no such plans but only informed Deutsche Börse of that fact with 30 minutes to respond to the decision on Sunday, according to Reuters. The decision, and the aforementioned handling of it, only furthers what have been growing tensions since the Brexit vote in June; the rift has ripped wide open in recent weeks as the planned location of combined company's headquarters—Frankfurt or London—has prompted public debates about the deal in both Germany and Britain.
As European markets grapple with the prospect that traders will lack an exchange to rival those based in North America and Asia, one consequence of the failed merger could be a bid from Atlanta-based rival Intercontinental Exchange (NYSE: ICE), which already owns the New York Stock Exchange. ICE first considered making a bid for the LSE last March before formally backing off in May.
If the deal between the LSE and Deutsche Börse finally falls apart—the European Commission's deadline for a ruling is April 3—it would mark the third publicly failed attempt to bring the stock exchanges together. But Brexit bears only a bit of the blame.
So, how did things fall apart this time? In short, ego. Just like the last time, actually, and the time before that.
2000: Deutsche Börse CEO Werner Seifert led the first attempted takeover of the London Stock Exchange. Although the deal was eventually rebuffed—officially, at least, over price—the failure came down to it being unacceptable for a City of London institution to be taken over by a German company—concerns echoed again by German and British officials over the current deal.
2004/2005: Seifert led a second attempt to acquire the LSE. This time Seifert failed largely because various investors opposed the bid, led by Chris Hohn's hedge fund The Children's Investment Fund (the owner of an 8% stake in Deutsche Börse). The investors hoped to instead use the company's healthy balance sheet to raise debt and pay shareholders a special dividend.
2005: Seifert stepped down and would in the following year publish a book titled “Invasion of the Locusts” that recounts his final days at Deutsche Börse. Another Swiss, Reto Francioni, took over but would not go after LSE again. Instead, Francioni proposed a $9.7 billion deal with NYSE Euronext. That deal was blocked by EU officials, leaving Deutsche Börse embarrassed once more.
2015: Carsten Kengeter assumed the helm at Deutsche Börse after being hailed as something of an investment banking wunderkind trained in derivatives marketing by Goldman Sachs in Frankfurt. In 2010, Kengeter took over as CEO of UBS but the rogue trading scandal of 2011, which cost the Swiss banking giant over $2 billion, rendered him persona non grata. Kengeter’s replacement as CEO put him in charge of “non-core” business. Kengeter left UBS humiliated in 2013 and surprised many when he landed the Deutsche Börse role.
2016: Kengeter announced the €29 billion merger with the LSE in March—after just 10 months at the helm. But just a few months before, Kengeter stocked up heavily on Deutsche Börse shares. He is now being investigated for doing just that.