On the day the UK filed formal notice of its decision to quit the European Union, the regulators in Brussels officially blocked the £25 billion merger between the London Stock Exchange (LSE) and Deutsche Boerse saying that they had failed to address competition concerns. Last month, LSE declined a commission request to sell its 60 per cent share in Italian trading platform MTS, though it had agreed to offload its French clearing business LCH.

Disappointment over the decision

LSE immediately expressed its disappointment at the commission's decision. "LSE believes the proposed merger with Deutsche Borse in combination with the LCH SA remedy would have preserved credible and robust competition in all markets.“This was an opportunity to create a world-leading market infrastructure group anchored in Europe, which would have supported Europe's 23 million SMEs and the development of a deeper Capital Markets Union.”Deutsche Boerse confirmed that, when formal notice of the decision was received from the European Commission, the merger agreement “will automatically terminate”.

Global market infrastructure provider

Joachim Faber, Deutsche Boerse chairman said, “The prohibition is a setback for Europe, the Capital Markets Union and the bridge between continental Europe and Great Britain. A rare opportunity to create a global market infrastructure provider based in Europe and to strengthen the global competitiveness of Europe’s financial markets has been missed.”But Margrethe Vestager, the EU's competition commissioner, said the commission could not allow the creation of monopolies “and that is what would have happened in this case”.She added, “The European economy depends on well-functioning financial markets. That is not just important for banks and other financial institutions. The whole economy benefits when businesses can raise money on competitive financial markets.“The merger between Deutsche Boerse and the London Stock Exchange would have significantly reduced competition by creating a de facto monopoly in the crucial area of clearing of fixed income instruments. As the parties failed to offer the remedies required to address our competition concerns, the commission has decided to prohibit the merger.”

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Prof John Colley, from Warwick Business School, commented, “Whilst the business is performing well at the moment there is very likely to be some fallout from Brexit. A weakened LSE may need to look west for a future partner and strategy.“There is likely to be plenty of interest from that quarter where Chicago's Intercontinental Exchange (ICE) has grown rapidly in recent years through acquisition. Dollar strength against sterling and low costs of borrowing suggest that ICE will come calling very quickly.”Neil Wilson, an analyst at ETX Capital, added, “Timing is everything. Brexit effectively killed this deal off nine months ago, so it's fitting that EU competition commissioner Margrethe Vestager delivered the coup de grace just a couple of hours before the UK triggers Article 50.”For related news and features, visit our Brexit section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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