LSE and Deutsche Boerse revisit merger plans to create £21bn exchange giant

Merger terms have been agreed between two exchange companies, the London Stock Exchange Group (LSE) and Deutsche Boerse, to create one of the largest exchange companies globally, with a combined value of approximately GBP21bn, it was announced on Wednesday.

According to the terms of the deal between the two exchanges, LSE shareholders will own 45.6% of the new holding company, while Deutsche Boerse shareholders will own 54.4%, when the merger is expected to be completed by the end of this year or early 2017. Both boards are said to have recommended that their shareholders accept the offer.

LSE Group owns the Borsa Italiana exchange in Milan, which will mean that a combined platform of London, Frankfurt and Milan will provide financing and promote economic growth for European companies, as well as being situated to provide an attractive offering to Asian and US companies seeking to access investors and capital. Around 30% of the new group’s revenue will reportedly come from the UK, 15% from Germany, 30% from the rest of Europe, 19% from North America and 6% from the rest of the world, mainly Asia.

Together, the two companies believe they will be able to make annual cost savings of GBP354m, which equates to about 20% of the combined group’s operating costs in 2015.

On completion of the merger, both the London and Frankfurt headquarters will be retained by the newly-merged company, while the new holding company, UK TopCo, will be incorporated in the UK. Also, LSE chief executive Xavier Rolet will step down from his role as LSE chief executive, but will remain for about a year to advise on the transition. LSE chairman Donald Brydon will become chairman of UK TopCo and Deutsche Boerse chief executive, Carsten Kengeter, will become chief executive.

In addition, the LSE and Deutsche Boerse have set up a referendum committee to consider the impact of a Leave vote in the EU Referendum. However, at this stage, both companies say the outcome of the Referendum is not a condition of the merger because they believe the combined group would be “well positioned to serve global customers irrespective of the outcome of the vote”.

It was also reported that Barclays, Goldman Sachs and JPMorgan Chase, Robey Warshaw, RBC Capital Markets, Société Générale and UBS advised the LSE on the deal, while Bank of America Merrill Lynch, Deutsche Bank, HSBC and Perella Weinberg Partners advised Deutsche Börse.