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Bigger, better?

When it comes to stock exchanges, size really does matter. The logic of the LSE-Deutsche Börse “merger of equals” seems compelling. But are new technologies and regulation also fundamentally changing capital markets? Grant Murgatroyd reports.

If at first you don’t succeed, try, try, and try again. On 1 June 2016 the London Stock Exchange (LSE) and Deutsche Börse (DB) published documentation in support of a merger. It was the third time the two have looked at tying the knot. There were too many other suitors back in 2000 and 2004, but this time they might just make it down the aisle.

Europe’s two largest exchanges could fit together very nicely – the revenue, cost and strategic synergies would make a list as long as your arm. “Our strategy was always to extend from our domestic focus to become one of the small number of players that would be global,” Xavier Rolet, chief executive of the LSE, told The Telegraph in April. “I’ve always said that I thought there would be a small number, three maybe four, and we want to be part of them.” 

Note Rolet said ‘part of them’, not ‘one of them’ – it is being sold as a ‘merger of equals’. The boards of both companies recommended the deal, and on 10 August it was announced that more than 75% of DB shareholders had agreed to it. “This high acceptance level is a strong vote of confidence and a major milestone,” said Gregor Pottmeyer, CFO of DB.

“We will now focus on receiving regulatory approvals.” Never easy, the regulatory picture was complicated by the UK’s decision to leave the European Union. In spite of the surprise referendum result, the terms of the merger are substantially unchanged.

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