London Stock Exchange merger facing heat of German resistance

By Staff Writer

Mar 29, 2016 08:22 PM EDT

The proposed merger of London Stock Exchange (LSE) with Deutsche Börse is facing a major hurdle in a form of resistance from Germany. Politicians and senior industry representatives are raising voice against the merger deal with the fear of losing the financial hub status of Frankfurt. 

A merger plan of £21-billion worth deal is under fire in Germany. There's increasing resistance from the country to moving headquarters of combined entity to London. Germany is also against giving Chief Executive of Deutsche Börse a top job in the combined entity. 

The Telegraph reports that Deutsche Börse's home district is lobbying at its best to retain the head office of the exchange in Frankfurt. Ulrich Caspar, who sits in the regional Parliament in Hesse, is raising voice against majority of shareholders' base from English speaking nations. After the mergers, shareholders of LSE will get 45.6 percent of holding and Deutsche Börse will have 54.4 percent. LSE chief will retire as part of the deal.

Manfred Zaß, a former director at Deutsche Börse, has warned about the compromises made in the merger deal. He said "Merger of equals could damage Frankfurt's standing, despite Kengeter's claims that the deal would safeguard the city, while enabling both the UK and Germany to compete in global markets."

German politicians and businessmen claim that the £21-billion deal is lopsided against their interests. Moreover, the headquarter of combined entity in London will undermine German exchange in Frankfurt, as reported by This is Money.

Zass, who left the bourse after its failed bid to buy the LSE in 2005, said "We should not be naïve. With respect, if you know the push and pull behind such a merger, it sounds more like an investment banker fairy story. The supposed parity-- the boss here, the domicile there-- creates a recognizably lopsided Frankfurt."

On the other hand, the ongoing prospective merger deal has divided the elite of London city. Difference of opinions is emerging over the merger as it deals with 300 years of independence of the LSE. London elite fear that LSE's independence may come to an end owing to the merger deal. It shouldn't be viewed from shareholders of LSE, but also from the point of view from public interest. LSE is part of London's infrastructure, further adds Financial Times.

Expected savings from the combined entity are €450 million or 20 percent of operational costs. In addition to the ongoing savings programs, merger of overlapping parts of business is expected to save costs for both the bourses. 

Meanwhile, American group Intercontinental Exchange has also expressed its interest in acquiring LSE. Chicago Mercantile Exchange and Hong Kong Stock Exchange are also linked to bids.  

Advisers on merger deal to Deutsche Börse and LSE are looking at the same structure called 'Stitching' by a Dutch foundation. This came up in NYSE's 2007 takeover of Euronext to prevent risk from new US law. Now, it also avoids a possible regulatory problem amid Brexit.

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