The proposed merger of the London Stock Exchange Group (LSEG) and Deutsche Börse has hit yet another stumbling block, as the board of LSEG declined to comply with fresh demands from the European Commission.
On 16 February the commission raised new concerns around the all-share merger of equals, regarding the bond and repo trading fees currently being provided by MTS, LSEG’s Italian electronic trading platform for European wholesale government bonds and other fixed-income securities.
The commission requested LSEG to sell the platform before the merger with Deutsche Börse can go ahead, demanding a formal proposal for divestment of LSEG’s majority stake by midday today (27 February).
The board of LSEG decided it would not agree to this, calling the request “disproportionate” and stating it is acting in the best interest of its shareholders by declining.
This follows the European Commission’s request, in September, for LSEG to divest its majority stake in LCH.Clearnet SA, the French arm of LCH.Clearnet Group, in order to address anti-trust concerns.
In January, Euronext placed an irrevocable all-cash offer for LCH SA, agreeing a put option and cash consideration of €510 million on the condition that the merger between LSEG and Deutsche Börse was completed. The sale was also subject to review and approval from the European Commission.
The new request arose from the commission’s market testing of LSEG and Deutsche Börse’s submitted commitment to the sale of LCH SA.
However, LSEG made the case that MTS is a systematically important regulated business in Italy, due to its role in the trading of Italian government bonds and other securities, arguing that it accounts for a “significant proportion” of LSEG’s revenue.
In a statement, LSEG said: “Any change of control of MTS would require, in particular, the approval of the Italian authorities and would trigger parallel regulatory approval processes in other jurisdictions including the UK, Belgium, France and the USA.”
It went on: “The LSEG board believes that it is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSEG were to give the commitment.”
“Moreover, the LSEG board believes the offer of such a remedy would jeopardise LSEG’s critically important relationships with these regulators and be detrimental to LSEG’s ongoing businesses in Italy and the combined group, were the merger to complete.”
LSEG conceded that, based on its current position, the commission is unlikely to give the go-ahead for the merger. However, it said the group “remains convinced of the strategic benefits of the merger” and will continue to work towards completion of it.
As well as requiring clearance from the European Commission, the proposed merger is subject to approval from all relevant regulators and authorities in all countries LSEG operates in. Discussions are underway with the majority of these, but have not yet been concluded.
