On the day the UK triggers the Brexit process, the European Union’s competition commissioner Margrethe Vestager put a final bullet in the merger plans of London Stock Exchange PLC (LON:LSE) and Germany’s Deutsche Boerse AG.
After almost exactly a year, the US$28bn all-share merger has been terminated after Vestager ruled that it "would have significantly reduced competition" in the area of clearing of fixed income instruments.
In a statement, the EU commissioner said: "As the parties failed to offer the remedies required to address our competition concerns, the Commission has decided to prohibit the merger.”
READ: LSE deal rejection expected ...
Announcing the deal’s termination as a result, LSE said it “regrets the Commission's decision” as its “believes the proposed merger with Deutsche Börse in combination with the LCH SA remedy would have preserved credible and robust competition in all markets.”
In December, the FTSE 100-listed group had agreed to sell its French LCH clearing house business to European exchange operator Euronext NV €510mln in cash to help alleviate competition concerns, a deal which will also now be terminated.
Earlier this month, however, the proposed deal hit what looked to be a terminal snag after the commission told the LSE it would also need to sell its 60% stake in Italian fixed income trading platform, MTS to get clearance.
The LSE said it would refuse to sell MTS as it would hurt its ongoing business in Italy although it continued to seek approval for the merger.
The group said today that it “does not agree with the view that a business of LCH SA's scale would not be a viable stand-alone competitor without the concurrent sale of MTS.”
One year on …
The two European bourse operators first announced their merger plans on 16 March 2016, and the Commission issued a statement of objections to the tie-up early in December.
In its statement today, LSE said it is “confident in its prospects as a standalone business” and promised to placate shareholders with a capital return.
The firm had previously announced that it would pay a special dividend to shareholders, contingent on completion of the merger, and it said it “intends to honour the capital return commitment.”
Accordingly, the firm said it plans to initiate an on-market share buyback of £200mln, an amount broadly equivalent to the return it would have made had the merger with Deutsche Boerse proceeded as planned.
Commenting on the EU decision, Neil Wilson, senior market analyst at ETX Capital, said: “Timing is everything.”
He added: “It brings to an end a fairly dubious history of proposed mergers for LSE at the same time. Its future looks to be, like Britain’s, outside of Europe.
“There were always fierce arguments about the location of the HQ and clearing and the deal never really sat well with regulators.”
Wilson concluded: “In the end LSE made it easy for the regulators by refusing to sell its stake in MTS, the Italian fixed income trading platform.
“The response from investors is positive with LSE shares jumping more than 3% on the news before paring gains to trade up 1.5% for the day. Perhaps there is life outside continental marriages after all.”