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VOL. 41 | NO. 12 | Friday, March 24, 2017

EU blocks merger of Deutsche Boerse, London Stock Exchange

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BERLIN (AP) — European regulators blocked the proposed merger of Germany's Deutsche Boerse and the London Stock Exchange on Wednesday, saying it would effectively have created a European monopoly in clearing bonds.

They shot down the pair's third attempt at a merger, which would have united the stock exchanges of Germany, Britain and Italy as well as several of the biggest European clearing houses.

EU antitrust chief Margrethe Vestager said the deal "would have significantly reduced competition by creating a de facto monopoly in the crucial area of fixed income instruments (such as bonds)."

The decision was expected after the London exchange said last month that it couldn't commit to selling its majority stake in the electronic bond market MTS, which would have alleviated the EU's concerns.

The deal would have combined Deutsche Boerse's Frankfurt-based clearing house, Eurex, with LSE's LCH.Clearnet and Rome-based Cassa di Compensazione e Garanzia. "They are basically the only companies that provide fixed income clearing services in Europe," Vestager said.

Deutsche Boerse and LSE did offer to sell the French-based part of LCH.Clearnet, but regulators found that its business depends on trading feeds from Italy-based MTS. They said they couldn't determine whether LCH.Clearnet SA would have been a viable competitor.

The companies also offered "a quite complex bundle of behavioral measures," but couldn't demonstrate that they would have been effective, Vestager said.

The companies announced the all-stock deal in March 2016, three months before British voters decided in a referendum to leave the European Union. Based on their stock market value at the time, their combined market value was about $30 billion.

On the day that Britain was formally triggering the process of exiting the EU, Vestager said Brexit did not play a role in Wednesday's decision.

"The U.K. is part of the European Union until it's not any more," she said. "Triggering negotiations today (is) not the end of the procedure; it's the beginning of the procedure."

Both companies had insisted that the deal made sense even in the case of Brexit. However, the referendum vote complicated the deal's prospects as it called for them to be united under a U.K.-based holding company — an idea questioned by some in Germany in light of Britain's EU departure.

Shareholders in Deutsche Boerse, which operates the Frankfurt stock exchange, would have owned 54.4 percent of the holding company.

In 2000, the LSE and Deutsche Boerse announced plans to merge, but the Germans pulled out after Sweden's OM Exchange made a hostile bid. That was rebuffed, as was a later offer from Deutsche Boerse in 2004.

Deutsche Boerse's supervisory board chairman, Joachim Faber, said Wednesday's decision was "a setback for Europe ... and the bridge between continental Europe and Great Britain."

CEO Carsten Kengeter insisted that "Deutsche Boerse is well-positioned on a stand-alone basis to compete at a global level with other market infrastructure players."

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