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LSE, Deutsche Boerse merger 'dead in water': source

The London Stock Exchange's merger with Deutsche Boerse appears to be "dead in the water", a source close to the matter told AFP on Monday, after the LSE declared it would not meet an EU antitrust demand. In a shock announcement on Sunday, the LSE said it was "highly unlikely" it would meet the European Commission's request to divest its majority stake in Italian trading platform MTS. The LSE argued that the sale -- aimed at addressing competition fears -- would be a disproportionate move and harm its business. The blockbuster merger, unveiled to much fanfare last year and vigorously backed by both sides even in face of Brexit, now appears set to be blocked by Brussels. An EC spokesman stressed that its assessment was ongoing and no decision had yet been taken. Nonetheless, "it looks dead in the water," a source with knowledge of the matter told AFP on condition of anonymity. "Officially, the talks go on with the Commission, but what the LSE have said is a reasonable assumption. "The EC asks for an important remedy. If the LSE cannot supply it, then it is going to hard to backtrack." - Third time unlucky - It is the third time that the Frankfurt and London stock exchanges have tried to tie the knot, following two unsuccessful attempts in 2000 and 2005. Investors took the news badly, with LSE stock sliding 2.43 percent to 3,049 pence in afternoon London deals, while Deutsche Boerse shed 2.65 percent to 79.47 euros in Frankfurt. "It does look like it's all over," Thomas Moore, investment director at Standard Life Investments, told BBC Radio 4. The development could now reignite interest from US-based global markets operator Intercontinental Exchange -- owner of the New York Stock Exchange -- which had decided against bidding for the LSE last May. The EC gave LSE until February 27 to outline a proposal for divesting MTS. But "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," LSE said in a statement. "Based on the Commission's current position, LSEG believes that the Commission is unlikely to provide clearance for the merger," it added. The LSE, which also operates the Milan stock exchange, did not put an end to the possibility of a tie-up, saying it would continue to seek to implement the deal. Deutsche Boerse, which also operates the Luxembourg-based clearing house Clearstream and the derivatives platform Eurex, said a final decision from Brussels was expected within weeks. "The parties will await the further assessment ... and currently expect a decision by the European Commission on the merger of DBAG and LSEG by the end of March 2017," it said. The proposed tie-up has drawn criticism from France, Belgium, Portugal and the Netherlands, fearful for their own stock exchanges, owned by Euronext. Last month, LSE agreed to offload the French arm of clearing house LCH to European rival Euronext, as part of efforts to address EU competition concerns. - 'Ball in Commission's court' - "The ball is in the Commission's court now ... what does it want to see in terms of European market infrastructure," the source said Monday. Brussels would have to decide whether it wanted the sector to be "run by Europeans, or by the North Americans and the Chinese," especially given the uncertainty surrounding London's status as a European financial capital following Britain's decision to quit the EU, the source said. An LSE-Deutsche Boerse merger would create a financial markets behemoth competing with the likes of the Chicago Mercantile Exchange and ICE in the United States, as well as the Hong Kong stock exchange in Asia. burs-rfj/bcp/spm/jh