LSE merger with Deutsche Börse in doubt after 'disproportionate' demands from Brussels

The London Stock Exchange’s merger with Deutsche Börse was thrown into doubt last night after the LSE’s board said addressing EU competition concerns would be “detrimental” to the business.

The LSE said the European Commission was unlikely to approve the €24bn (£21bn) deal to create Europe’s largest exchange operator following eleventh hour demands by Brussels to sell MTS, a key electronic bond trading platform.

In a statement last night, the LSE described the terms outlined by Brussels to clear the deal as “disproportionate” and impractical.

“Based on the Commission’s current position, LSE Group believes that the Commission is unlikely to provide clearance for the merger,” it said.

The LSE said the MTS platform played a “systemically important” role in the trading of Italian government bonds and other securities, and that divesting the business would “jeopardise” its relationship with regulators.

It claimed that selling MTS would also trigger a fresh wave of regulatory concerns on both sides of the Atlantic and be “detrimental to [the LSE’s] ongoing businesses in Italy and the combined group, were the merger to complete”.

The LSE said the company was acting “in the best interests of shareholders” and would not submit an alternative proposal with regards to MTS.

Sources close to the deal said the move by the LSE took the German stock exchange giant by surprise.

If the deal collapses, it will be the third time the companies have tried and failed to merge after attempts floundered in 2000 and 2005.

The latest plan for a tie-up, announced almost exactly a year ago, has been dogged by controversy since the UK voted to leave the European Union last June.

Politicians in both countries have criticised the deal, while German officials have called for it to be scrapped due to plans to base the combined entity in London.

The German state of Hesse, in which Deutsche Börse is located and which has a veto power over the deal, has called for the combined entity to be based inside the EU.

The LSE said Brussels had “unexpectedly raised new concerns” about the deal less than two weeks ago, and gave the company until Monday morning to respond.

LSE and Deutsche Börse proposed last September to sell the French wing of the LSE’s clearing house in a bid to soothe EU competition concerns.

It agreed the terms of a sale to rival Euronext earlier this year.

The LSE said it had also proposed a “clear-cut structural remedy” to complement the divestment of LCH Clearnet SA, which it said “addressed the Commission’s specific concerns”.

London Stock Exchanges tumultuous history of bids

While the LSE has not disclosed details of the proposal, it said the “improved remedy was, in the parties’ view, effective and capable of ready implementation, but it was rejected by the Commission.”

The LSE board said it remained “convinced of the strategic benefits of the merger” between the two stock exchanges, and recognised the support for a deal among shareholders of both companies.

“LSE group will continue to take steps to seek to implement the merger,” it added.

A spokesman for Deutsche Börse declined to comment.

European competition authorities are due to rule on the tie-up before April 3.