Shares in the London Stock Exchange have jumped to a record high, as foreign exchanges race for ownership of one of the City’s oldest institutions. The LSE and Germany’s Deutsche Börse announced merger talks in February, with the potential for creating Europe’s largest stock-exchange owner, worth more than £20bn ($28bn).
A merger would combine the LSE’s share-trading business with Frankfurt-based Deutsche Börse, which is bigger in derivatives, but the deal is being hotly contested by rivals in America. Atlanta-based ICE, which owns the New York Stock Exchange, has said it is considering a rival bid, sending shares in the LSE to an all-time high on Thursday. The Chicago Mercantile Exchange is also being advised on an offer, according to Bloomberg.
Exchanges have increasingly fought to swallow one another, as the sector grapples with new trading platforms, including so-called “dark pools”, where traders can deal anonymously.
ICE paid $10bn for the New York Stock Exchange in 2013 and $5bn for a data company last year. Its fiercely competitive founder, Jeffrey Sprecher, has also previously launched failed bids for the Chicago Board of Trade and the London Metal Exchange, in deals totalling more than $23bn.
Deutsche Börse’s Chief Executive, Carsten Kengeter, the former head of UBS, is an equally aggressive dealmaker. Deutsche Börse has tried to buy the LSE at least three times in the past, while Kengeter spent $1.5bn on deals in his first 60 days as chief executive.
As Britain approaches a referendum on its EU membership, the merger also plays to fears that the country is being subsumed by European institutions. The combined group will keep its headquarters in London, but this is a mere “fig leaf”, says Nick Goodway in the Evening Standard. Kengeter will lead the company, clearing facilities will move to Frankfurt, and Deutsche Börse investors will pocket 54% of the new combined group’s shares.
The LSE has said the merger is unrelated to the risk of Britain leaving the EU, but the timing does looks somewhat convenient. Merger talks emerged just three days after Prime Minister David Cameron confirmed a date for a referendum. Nor is the deal currently binding, allowing the LSE to wait and see which way Britain votes before either proceeding with the deal, or calling talks off. In short, “the average punter”, said Conservative MP Mark Garnier, “will look at this and say it is the Germans taking over our institutions”.