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LONDON (Reuters Breakingviews) - The London Stock Exchange and Deutsche Boerse really hope their merger of equals will go ahead. So do some of their investment bank customers. Many politicians in Germany and the United Kingdom, though, hope it fails, and shareholders don’t really mind either way. A probable objection from the European Commission’s antitrust police is therefore no disaster.
LSE says it cannot meet a new demand from competition authorities in Brussels to sell a majority stake in its Italian MTS trading platform. Why the commission has demanded the sale - and why the LSE cannot comply - are both mysteries. One theory is that trades which MTS currently funnels through a soon-to-be-sold French clearing business might instead be routed to other parts of the LSE system. That would nullify the pro-competition effects of the French sale. Then again, LSE’s claim that its relationship with Italian regulators would be damaged if it attempted to sell MTS sounds thin. Anyway, such protests are immaterial; the commission’s decision is binding.
Both sides are now waiting for Europe’s next move. Unless Brussels has a change of heart, the deal will most probably be blocked by the end of March, leaving both sides back where they were when they unveiled the deal a year ago. That’s not so bad. First, shareholders had only priced in a sliver of the supposed benefits of a combination. The companies’ combined market values fell by around 1.2 billion euros on the morning of Feb. 27. Had the merger gone ahead, delivering the promised 610 million euros of annual revenue and cost benefits after three years, the total value created would have been perhaps four times that.
LSE may still find suitors elsewhere. Deutsche Boerse might try again later - after all, current European antitrust chief Margrethe Vestager’s term ends in 2019. American exchange operator ICE dangled the prospect of a counterbid last year, though it claimed to have been put off by uncertainty around Britain’s vote on leaving the European Union, which came just four months after the merger with Deutsche Boerse was announced. Bosses Xavier Rolet and Carsten Kengeter will be disappointed if their efforts come to naught - but neither is any worse off for having tried.
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