LSE/Deutsche Boerse: Tender offer prospects still bullish, sources say - MergerMarket
* Brexit puts synergy value in doubt – Deutsche Boerse shareholder
* HQ location unlikely to be resolved until merger reviews complete
* Parties comfortable with timetable, see close before end-June 2017
Sufficient numbers of Deutsche Boerse [ETR:DB1] shareholders are likely to tender into the proposed combination with the London Stock Exchange [NYSE:LSE] for the deal to proceed, said a source and a person familiar with the matter and an industry banker.
An undecided top-25 shareholder in both companies said his support for the Detusche Boerse shareholder vote will be less forthcoming than in the LSE vote, where his fund endorsed the deal. The prospect of Brexit puts the value of synergies in doubt, he said, though he also suggested the merged entity would be a “powerful organization” with “enormous value creation.”
As of today, 24.87% of Deutsche Boerse shareholders have tendered into the deal. The parties need to clear a 75% threshold to approve the merger.
Most shareholders are expected to decide closer to the 12 July tender deadline, the person said.
The deal parties have received positive feedback from discussions with investors and are confident about hitting the necessary threshold, said the person familiar. Previous recommendations by ISS and Glass Lewis in favor of the deal’s LSE vote should also bode well for the ongoing vote, he reasoned.
Domicile change?
LSE shareholders having approved the combination at last week’s Court Meeting and the Deutsche Boerse tender process being open together place a constraint on parties should they look to renegotiate the terms of the deal in response to Brexit, a second person familiar with the situation said.
Recent press reports have raised the prospect that the parties could renegotiate the merger agreement in response to German regulators’ calls for supervisory authority over the company. Terms currently envisage the merged entity being headquartered in London. Any resulting change in domicile would require shareholder approvals, the source familiar and the second person said.
The deal parties have no plans to amend the merger agreement in the near term, the source familiar said. He noted the deal is still many months away from closing.
There is flexibility to change deal terms including location following the close of the tender period, said the source familiar, though issues such as the headquarters location are not likely to be considered until the competition review process advances in the autumn.
The persons familiar agreed, calling speculation about a change of domicile premature.
Still, the shareholder said a change in HQ location should be made to a location within the EU. He argued that the Hessen Exchange Supervisory Authority’s likelihood of blocking the deal as high if the domicile did not change.
The shareholder and banker both downplayed the likelihood of a domicile outside of London, however. The banker was sceptical the nationalist forces that created Brexit would be a supportive background to UK regulators and politicians capitulating to a re-domicile of the country’s marquee exchange.
Timing
Regulatory scrutiny and potential concerns about domicile might impact how the deal closes, but not the timeline, the source familiar said. There is no reason to wait for UK-EU negotiations on Brexit to conclude before executing the deal, he said.
The parties still expect the deal to close ahead of the 30 June 2017 long-stop date, the source and first person familiar said. All jurisdictions should be able to clear the merger by 1Q17, the person and shareholder said.
With the long-stop date still almost a year away, the parties have more cushion than NYSE Euronext allowed in its blocked USD 17bn bid for Deutsche Boerse 2011-12, the source familiar reasoned. The termination date is not being extended as of now, he added.
While the shareholder also anticipated an early 1Q17 closing, he noted that he would certainly withdraw approval if the deal required a longer closing as late as 2018. Under the UK Takeover Code, the long-stop date can be extended “with the agreement of the parties to the offer”.
A longer extension would potentially exclude the parties from alternative value-enhancing initiatives, the banker said. For LSE, a post-Brexit tie-up with Intercontinental Exchange [NYSE:ICE] could become more attractive as both bourses may avoid European Union merger control scrutiny encountered by the current deal, he reasoned. The oft-speculated combination of Deutsche Boerse and CME Group [NASDAQ:CME] could likewise be given new air, he said.
LSE and Deutsche Boerse declined to comment for this article.