The London Stock Exchange Group (LSEG) and Deutsche Börse have reached an agreement on the terms of an all-share merger of equals, which will not be dependent on the outcome of the UK’s European Union referendum.
The merger will be completed through establishing a new UK holding company, UK TopCo, which will acquire both LSEG and Deutsche Börse, governed by the City Code and the German Securities Acquisition and Takeover Act, respectively.
LSEG shareholders will own 45.6 percent of UK TopCo, with Deutsche Börse shareholders owning the remaining 54.4 percent.
The combined group is intended to be well placed to adapt to changes in the industry, to increase the global footprint of both organisations, and to improve reach and distribution.
The outcome of the UK’s EU referendum, set for 23 June, is not a condition of the merger. LSEG and Deutsche Börse have established a referendum committee that will consider the effects of a vote for the UK to leave the EU, making recommendations to the boards, and to the board of UK TopCo, after the merger.
Both parties are of the opinion that a combined group would be a good position irrespective of the outcome of the vote, however, the result may have an effect on the nature or the volume of business that the combined group carries out.
The board of UK TopCo will have equal representation from Deutsche Börse and LSEG. Following completion of the merger, Xavier Rolet will step down as CEO of LSEG, becoming an advisor to the chairman and deputy chairman in order to help facilitate a smooth transition – an arrangement expected to last up to a year.
Donald Brydon, current chair of LSEG, will become chair of UK TopCo, and Joachim Faber, current chair of the supervisory boards at Deutsche Börse, will become deputy chair and a senior independent director.
Deutsche Börse CEO Carsten Kengeter will be CEO of UK TopCo, while LSEG CFO will move to the same position at the combined group.
Brydon said: “Xavier Rolet has been the architect of LSEG’s considerable value creation and has offered to retire in order to ensure the successful creation of the new group. The board of LSEG is indebted to [him] for this action, which is consistent with his focus on putting the interests of shareholders and clients first.”
The group will maintain headquarters in London and Frankfurt, and regulated entities within the group will remain unchanged, subject to customary approvals and final regulatory approvals.
The merger is expected to be completed either at the end of 2016 or in Q1 2017.
Rolet said: “We are creating an industry-defining combination which will be a leading global market infrastructure business, very well positioned to create new benefits and efficiencies for our customers and increase value for our shareholders.”
“Our highly complementary businesses will accelerate growth. Our shareholders will also benefit from substantial cost and revenue synergies. The combined group will continue to be fully committed to the real economy, by supporting companies, including the 23 million small and medium-sized enterprises across Europe that drive economic growth and job creation. We will create a European leader in global markets infrastructure.”
Kengeter said: “Strengthening the link between the two leading financial cities of Europe, Frankfurt and London, and building a network across Europe with Luxembourg, Paris and Milan will strengthen European capital markets. It is the logical evolution for our companies in a fundamentally changing industry.”
He added: “It brings together two of the most respected and successful market infrastructure providers in the world to lead the way in European capital markets and set the benchmark for further growth and best-in-class services.”
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