11.14.2016

Deutsche Boerse-LSE Said to Face EU Antitrust Objections

(this article originally appeared on Bloomberg)

Deutsche Boerse AG’s acquisition of London Stock Exchange Group Plc faces a so-called statement of objections cataloging the European Union’s antitrust concerns over their merger plans, according to a person familiar with the matter.

EU regulators are expected to issue the document in December, laying out how the tie-up creating by far the largest exchange operator in Europe may quash competition, according to the person, who asked not to be named because the process is private.

Statements of objections detail potential deal-breakers that may need to be addressed before regulators can give their blessing. Regulators opened an in-depth probe into the transaction in September citing a long list of issues including how merging the pairs’ clearing houses might harm other trading venues and post-trade markets.

While being sent formal objections increases the risk that deals can be blocked, most companies still manage to win over regulators by selling units or pledging to change the way they do business. LSE plans to sell its French clearing unit to help placate the EU, it said in September. It will keep its larger London clearing operations.

“It reinforces my existing view that there’s a growing probability that the deal is likely to fail,” said Jonathan Goslin, an analyst at Numis Securities Ltd. in London. “If they start divesting assets, that’s obviously going to have an impact on the synergies.”

LSE shares fell as much as 0.8 percent in London trading. Deutsche Boerse declined as much as 0.9 percent in Frankfurt.

‘Very Confident’

“We feel very confident with what we’ve done so far,” Deutsche Boerse Chief Executive Officer Carsten Kengeter told reporters in Brussels Tuesday, referring to the French divestment. While the EU’s “very thorough” analysis focuses on numerous issues “the length of the laundry list isn’t necessarily decisive” and “you’ve seen a very quick reaction” from the companies, he said

“We think the logic of this proposition is good for everyone, including the critics,” Kengeter said. He earlier gave a speech describing the tie-up as an important part of boosting the European economy by tackling a funding bottleneck that prevents small European businesses scaling up to become world beaters.

Deutsche Boerse and LSE representatives declined to comment on the statement of objections, as did the European Commission in Brussels.

Clearing — a key back-office function that acts as a firewall against defaulting traders — is a major rationale for the $13 billion deal. Deutsche Boerse has a massive futures-clearing business, while LSE is the majority owner of LCH, the world’s biggest clearer of swaps. The EU also said it has concerns about markets for derivatives and short-term financing known as repo, as well as German stocks and exchange-traded funds.

The EU has a March 6 deadline to rule on the deal.

This is the third time the German exchange group has sought to buy LSE since the turn of the century. It comes four years after the EU blocked plans by Deutsche Boerse and NYSE Euronext to create the world’s biggest exchange. Regulators said that deal would have created a near-monopoly in European exchange-traded derivatives.

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