Deutsche Boerse-London Stock Exchange merge in doubts

Deutsche Boerse-London Stock Exchange merge in doubtsDeutsche Boerse AG’s $13 billion bid for London Stock Exchange Group Plc headed toward collapse after the UK market operator rejected demands by European regulators to sell one of its holdings, according to Bloomberg on Sunday.

LSE said it couldn’t commit to selling its stake in MTS, an electronic trading platform for government bonds, and declined to submit a counter proposal after European Union officials made divesting the unit a condition for approval. Shares of Deutsche Boerse fell as much as 4.1 percent on Monday, while LSE dropped as much as 3.5 percent.

“Based on the commission’s current position, LSEG believes that the commission is unlikely to provide clearance for the merger,” LSE said in a statement Sunday night.

The European Commission said it had no comment. Deutsche Boerse said it was still waiting for European regulators to make a final decision.

A failure to overcome regulators’ concerns may invite new deals involving LSE, which has been a takeover target for almost two decades yet has never consummated a deal of this scale. It also raises questions about its chief executive officer, Xavier Rolet, who under terms of the takeover would step down if it succeeds.

In the past year, LSE avoided a potential offer from U.S.-based Intercontinental Exchange Inc. Now, ICE has another opportunity to try to buy the London exchange company. Analysts have speculated that, should Deutsche Boerse’s takeover of LSE fail, a company like electronic market operator NEX Group could become a target for LSE.

Smaller exchange companies in Europe, meanwhile, could get some relief from the competitive threat that a combined LSE, Deutsche Boerse would have posed.

The companies’ ambition was to create Europe’s dominant operator in everything from indexes to stock markets and clearing, with businesses in more than 30 countries. It would potentially be the most profitable company in its industry. Some have said it could bridge financial centers at a time when politics threatens to pull them apart.

But LSE said it couldn’t sell MTS, which plays an important role in trading Italian government bonds. Based on dialogue with Italian officials, LSE said it was “highly unlikely” that a satisfactory sale could be achieved and that such a move would hurt its relationships with those regulators.

Previously, the only offer from the two to appease antitrust regulators had been LSE’s proposed sale of its French clearinghouse. LSE said the commission unexpectedly brought up new concerns about the planned sale of the French unit and its relationship to MTS.

LSE and Deutsche Boerse proposed a remedy that EU officials rejected. The commission’s demand for the divestment of LSE’s majority stake in MTS was too much for LSE, the company said on Sunday.

Regulators are due to rule on the takeover by April 3, but Deutsche Boerse said in a statement Sunday that it expects a decision by the end of March. The German state of Hesse, a vocal critic of the deal, regulates Deutsche Boerse and will review the deal if it survives EU scrutiny.
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