London, Deutsche Börse Agree to Merge

The two largest stock exchange operators in Europe have agreed to combine in a merger that would create an exchange operator with a market cap of around £21 billion (about $29.6 billion). The London Stock Exchange (LSE) and Germany’s Deutsche Börse announced the combination Wednesday morning.

But rather than end speculation of takeover of the LSE by U.S.-based Intercontinental Exchange Inc. (NYSE: ICE), the announcement has only fueled speculation of a higher offer from the ICE.

According to the Financial Times, LSE shareholders would get 0.4421 shares in the combined group for every LSE share they own, while Deutsche Börse shareholders will receive one share. LSE shareholders would thus own 45.6% of the combined group, while Deutsche Börse shareholders would own 54.4%. LSE shareholders will be paid two dividends worth a total 37.2 pence, while Deutsche Börse investors will receive a payout of €2.25 per share.

The Wall Street Journal noted that the premium being offered for LSE is only 15% above its value before word of the deal leaked out in February. If the ICE does come in with a counter offer, the premium for LSE shareholders is very likely to be higher than that.
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Regulators, of course, may have the final say, even if the ICE does come in with an offer. British and German regulators will be guided by their respective country’s political interests, making the proposed tie-up anything but a slam-dunk. And EU regulators are going to be examining the monopoly aspects of the deal.

Shares of LSE traded down about 0.6% Wednesday morning in London and shares of Deutsche Börse traded up about 1% in Germany. The ICE traded down about 0.9% at $234.51 in New York, in a 52-week range of $220.28 to $268.89.