The London Stock Exchange’s (LSE) proposed merger with Deutsche Börse may not now go ahead after the LSE ruled out selling its 60 per cent stake in fixed-income trading platform MTS.
The European Commission had ordered LSE to sell its majority stake in MTS to secure clearance for the merger.
MTS is a regulated electronic trading platform for European wholesale government bonds and other fixed income securities. It is a relatively small part of LSE’s business but is classified as a “systemically important regulated business” in Italy, where LSE also owns the Milan-based Borsa Italiana.
According to LSE, 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 US.
Following dialogue with Italian authorities about the commission’s required remedy and given prior discussions between the principals and Italian authorities regarding LSE’s Italian businesses in the context of the merger, the LSE board believes that it is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSE were to give the commitment. Moreover, the LSE board believes the offer of such a remedy would jeopardise LSE’s critically important relationships with these regulators and be detrimental to LSE’s ongoing businesses in Italy and the combined group, were the merger to complete.
The LSE board has concluded that it could not commit to the divestment of MTS and will therefore not be submitting a remedy proposal with respect to MTS as requested by the European Commission. Based on the commission’s current position, LSE believes that the merger is now unlikely to granted clearance.
According to a statement from LSE, the board remains convinced of the strategic benefits of the merger and recognises the strong support from shareholders for the transaction.
“LSE will continue to take steps to seek to implement the merger. In addition to commission clearance, the merger is conditional on regulatory clearances from Italian regulators and all relevant regulators including the Bank of England, FCA, BaFin and the Hessian Exchange Supervisory Authority (HESA), as well as all other relevant regulators and authorities in all other countries in which LSE operates. While discussions are being progressed with a number of these regulators, the regulatory process has not yet been concluded and formal engagement has not yet begun with HESA.
“The LSEG board is highly confident in the strength of LSEG’s business, strategy and prospects on a standalone basis, under its strong management team led by chief executive Xavier Rolet. LSE will announce preliminary results for the year ended 31 December 2016 on 3 March 2017. LSE expects to report strong progress across all business areas and has continued to invest to drive multiple growth opportunities. The group continues to deliver on its successful strategy based on customer partnership and the Open Access model and is strongly positioned to make further progress as a well-diversified financial markets infrastructure business with a global footprint.”
The LSE is now waiting for a further assessment by the European Commission, which is expected to make a decision by the end of March.