London Stock Exchange plc (LDNXF) and Deutsche Boerse AG (DBOEY) shares fell sharply Monday as the third attempt to combine the two stock exchange operators appeared close to collapse amid demands from competition authorities in the European Union.
The LSE said late Sunday that it was unlikely to meet a demand from the EU to sell 60% of its MTS government bond trading platform in order to comply with concerns that the €29 billion ($30.1 billion) merger with the Deutsche Boerse could hamper competition in the region's financial services sector. The LSE had until today to provide details as to how it would comply with the request.
"Taking all relevant factors into account, and acting in the best interests of shareholders, the LSEG Board (Sunday) concluded that it could not commit to the divestment of MTS. LSEG will therefore not be submitting a remedy proposal with respect to MTS," the statement continued. "Based on the Commission's current position, LSEG believes that the Commission is unlikely to provide clearance for the Merger."
LSE shares fell more than 3% in early London trading, the biggest single-day decline since the June 23 Brexit vote, to change hands at closed at 3,029.00 pence each. Deutsche Boerse shares were also marked 3% lower by 08:30 GMT at €79.00 each.
An end to the merger would mark the third time the Deutsche Boerse had failed to either buy or combine with the LSE, following unsuccessful attempts in 2000 and 2005. It would also be the sixth time a takeover or a merger with the LSE was undone, either by regulators or shareholders, in the past 16 years.
The German stock exchange operator responded late Sunday with a brief statement that noted the LSE's decision but added that "The parties will await the further assessment by the European Commission and currently expect a decision by the European Commission on the merger" by the end of March.
Last March, the two exchange operators announced the all-stock deal that would be headquartered in London and led by Deutsche Boerse CEO Carsten Kengeter, with shareholders receiving 54% of the combined entity against 45.6% for LSE owners.
Competition concerns are not the only hurdle standing in the merger's way. German criminal authorities announced they were probing Kenetger's share dealings prior to the merger announcement. Frankfurt's public prosecutor is investigating whether share purchases by the CEO in December 2015 were insider trading and if negotiations between the two exchanges had taken place at the time.
The prosecutor said it was looking at discussions between LSE and Deutsche Boerse executive that happened between July and August 2015 and at the beginning of December 2015.
Earlier this month, Deusche Boerse's supervisory board said it "unanimously expresses its full confidence" in the CEO and that no negotiations had taken place in 2015.