LSE/Deutsche Boerse: No shareholder talks held over HoldCo HQ location
11 JAN 2017
- Parties adamant on retaining current deal structure
- HQ move could put off UK politicians, take time, offset deal balance
- Hessen review talks to gather pace after EC merger ruling
London Stock Exchange Group (LSE) [LON:LSE] and Deutsche Boerse [ETR:DB1] have not sounded out shareholders about whether they would support moving the combined group’s holding company (HoldCo) headquarters to Frankfurt from London, a source close to the situation and two persons familiar with it said.
The merger parties are adamant that the current deal structure, with the HoldCo HQ based in London, should remain unchanged, the first and a second source and the two persons said.
The HoldCo's HQ will need to remain in London partly because the UK government could take a negative view on a relocation, the first source argued. Any changes to the merger prospectus would also take time, and the parties would rather finalize the disruptive merger process and move on with business, the second source said.
Furthermore, a relocation could upset the balance of the deal, the second source added.
The merger parties are adamant that the current deal structure, with the HoldCo HQ based in London, should remain unchanged, the first and a second source and the two persons said.
The HoldCo's HQ will need to remain in London partly because the UK government could take a negative view on a relocation, the first source argued. Any changes to the merger prospectus would also take time, and the parties would rather finalize the disruptive merger process and move on with business, the second source said.
Furthermore, a relocation could upset the balance of the deal, the second source added.
The merger of equals could look more like Deutsche Boerse taking over LSE if the German side got the HoldCo HQ location in addition to retaining its CEO and having its shareholders getting more of the combined company, this source argued. Then, people might argue that the bidder should pay a higher premium than is the case under the merger’s current terms, he cautioned.
German politicians have pushed for the HQ to be based in Frankfurt, but Deutsche CEO Carsten Kengeter has been pushing back against these calls, the Financial Times wrote last month.
Although Hessen’s regional government “may have an issue” with the HQ location, it will not necessarily be a significant factor for the Hessen Exchange Supervisory Authority, which regulates Deutsche Boerse and will rule on the merger, the first person said. Its legal test may not relate much to where the HoldCo HQ is based, the second argued.
As reported previously, the Supervisory Authority operates under Hessen’s economy ministry, but deal watchers have tipped it to rule by the book rather than based on any political considerations.
German politicians have pushed for the HQ to be based in Frankfurt, but Deutsche CEO Carsten Kengeter has been pushing back against these calls, the Financial Times wrote last month.
Although Hessen’s regional government “may have an issue” with the HQ location, it will not necessarily be a significant factor for the Hessen Exchange Supervisory Authority, which regulates Deutsche Boerse and will rule on the merger, the first person said. Its legal test may not relate much to where the HoldCo HQ is based, the second argued.
As reported previously, the Supervisory Authority operates under Hessen’s economy ministry, but deal watchers have tipped it to rule by the book rather than based on any political considerations.
Under section 6(2) of the German Exchange Act, the Authority is tasked with ensuring the Frankfurt exchange’s future development is not hindered by the merger. As reported, review areas may include whether Deutsche Boerse can retain sufficient freedom of action to run stable IT operations, handle conflicts of interest and the like, and whether its clearing operations can remain independent despite the merger parties’ cross-margining plans.
The review will likely focus on the merger’s effects on jobs and investments and on its legal structure, the second person suggested.
The merger parties are talking to the Supervisory Authority on a regular basis but will await the European Commission’s (EC) competition review outcome before pursuing the Hessen probe more actively, the second person said.
The review will likely focus on the merger’s effects on jobs and investments and on its legal structure, the second person suggested.
The merger parties are talking to the Supervisory Authority on a regular basis but will await the European Commission’s (EC) competition review outcome before pursuing the Hessen probe more actively, the second person said.
As reported, the Supervisory Authority expects to start its one-month formal review timeline only after the EC ruling. The EC review deadline is 13 March.
If Hessen’s Supervisory Authority should ask for a relocation of the HoldCo HQ, the parties would require shareholder approval from a new EGM in order to comply, the second person said.
Shareholders in LSE might not care much about where the HQ is based, the second source suggested. But the parties do not foresee any new vote to change the current deal structure, he added.
Spokespersons for LSE and Deutsche Boerse declined to comment on the matter. The Hessen Exchange Supervisory Authority could not be reached for comment.
If Hessen’s Supervisory Authority should ask for a relocation of the HoldCo HQ, the parties would require shareholder approval from a new EGM in order to comply, the second person said.
Shareholders in LSE might not care much about where the HQ is based, the second source suggested. But the parties do not foresee any new vote to change the current deal structure, he added.
Spokespersons for LSE and Deutsche Boerse declined to comment on the matter. The Hessen Exchange Supervisory Authority could not be reached for comment.