Deutsche Börse

Carsten Kengeter’s Steeplechase

deutsche boerse LSE
Xavier Rolet from LSE and Carsten Kengeter from Deutsche Börse have a lot to talk about to succeed in merging their two companies. Sources: Getty Images, DPA [M]
  • Why it matters

    Why it matters

    Even if a combination of Europe’s leading exchange operators seems like a perfect fit, anti-trust authorities, banking regulators and even Britain’s euro-skeptics may have their say.

  • Facts


    • The German state of Hesse, where Deutsche Börse is based in the Frankfurt suburb of Eschborn, has power to block the deal.
    • This is the third merger bid between Deutsche Börse and the London Stock Exchange over the past 20 years.
    • An E.U. court last year upheld the Commission’s rejection of a proposed Deutsche Börse-NYSE Euronext tie up, citing anti-trust concerns that could resurface.
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After throwing down a cup of coffee and a salty pretzel, Deutsche Börse Chief Executive Carsten Kengeter stepped before a hungry press Wednesday to launch a new initiative at a stylish office space in Frankfurt aimed at attracting financial technology startups.

“We want our initiative to create a suitable environment for fin-tech companies in Frankfurt. Our contribution is embedded in the concept of the state’s fin-tech initiative,” the Deutsche Börse boss said in prepared remarks.

But Mr. Kengeter’s presentation of the incubator and how it fits in with a broader financial technology initiative of the state of Hesse – where Frankfurt is located – fell upon largely deaf ears.

The problem was one of timing. The event came just one day after Deutsche Börse and the London Stock Exchange confirmed they were discussing a “merger of equals” that could create the world’s second-largest stock exchange operator.

Mr. Kengeter will become the chief executive of the new combined firm, Handelsblatt has learned, but first he has to get the merger passed regulatory authorities and politicians.

Easily overshadowing Wednesday’s incubator launch, the third tie-up attempt over the past two decades for Europe’s two leading exchange operators is anything but certain. Even if their derivatives and equity trading arms seem like perfect fits, the merger path is strewn with many of the same political and regulatory hurdles that obstructed their prior merger bids.

The third tie-up attempt over the past two decades for Europe’s two leading exchange operators is anything but certain.

For most financial analysts, combining the two firms makes perfect sense. Diego Perfumo, an analyst with Equity Research Desk in London, said the two companies are probably a better fit than the average merger in the exchange sector over the past few years.

“There is massive value to be created for shareholders,” Mr. Perfumo told Handelsblatt Global Edition.

Politics is another matter, however. Many both in Germany and Britain fear a loss of jobs if one or the other operator is forced to move its operations.

Sharing the stage with Hesse’s economics minister, Tarek Al-Wazir, Mr. Kengeter was forced to address one rumor already making the rounds: that Deutsche Börse could relocate its equities trading division to London. A key part of its business, the unit also is a large source of employment in Hesse.

“You can assume that won’t happen,” Mr. Kengeter assured the state economics minister.

Pleasing Mr. Al-Wazir and other state officials is a top priority if this merger is to succeed. Hesse has the power to block the deal by preventing third parties from acquiring shares.

Together with Germany’s Trading Surveillance Office and the Federal Financial Supervisory Authority, BaFin, the state economics ministry supervises Deutsche Börse’s Frankfurt Stock Exchange, which is regulated under public law. The ministry also maintains two permanent guest seats on the non-executive supervisory board, which has responsibility for approving all issues of fundamental significance for the stock exchange, and for supervising, hiring and firing its management board.


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The state economics ministry’s position on the current merger proposal remains unclear. Mr. Al-Wazir on Tuesday initially reacted with surprise to the merger bid, saying, “Information that would allow a proper analysis of the plans is not yet available.”

Also unclear is the position of the bourse’s own supervisory board. According to sources, only one member, Joachim Faber, knew about the deal in advance.

Then there’s Brussels – perhaps the biggest hurdle of all. Mr. Kengeter’s predecessor, Reto Francioni, stumbled over the European Commission in 2012, when the executive branch of the European Union blocked the exchange operator’s planned merger with NYSE Euronext, citing anti-trust concerns.

An E.U. court rejected Deutsche Börse’s appeal last March.

“Information that would allow a proper analysis of the plans is not yet available.”

Tarek Al-Wazir, Economics Minister, German State of Hesse

E.U. Competition Commissioner Margrethe Vestager’s office declined to comment on the prospects of the new merger bid, since the partners first must agree on details of the deal and then must officially present it for regulatory scrutiny.

In blocking Deutsche Börse’s previous attempt to join forces with NYSE Euronext, Brussels took issue with redundancies in the European financial derivatives business, which they determined would have created a near-monopoly.

This time around, that wouldn’t be a problem. But anti-trust experts in Brussels see another potential deal-breaker: the combination of Deutsche Börse’s Eurex Clearing platform with the London Stock Exchange’s LCH Clearnet.

“If both clearing houses had the same owner, that would be the most sensitive point for the anti-trust investigation,” said one anti-trust attorney in Brussels who wished to remain unnamed. Thus, approval of the merger may require “structural changes,” the source said.

In other words: the sale of one of the two clearing platforms could be a prerequisite. LCH Clearnet seems like the more obvious choice, since Eurex Clearing is more strongly integrated with Deutsche Börse.


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The European Commission also opposed the “vertical silo system” of clearing houses in rejecting the Deutsche Börse-NYSE Euronext merger.

In light of its handing of that failed fusion, anti-trust experts expect another intense regulatory proceeding this time around. “When the Commission investigates, it investigates very rigorously,” said one anti-trust expert, who also expects third parties with vested interests to oppose the planned merger.

Both German and British economics ministries declined to comment on the deal. But unofficially, sources said the timing for merger discussions was unfavorable given Britain’s June 23 referendum on whether or not to exit the European Union.

The two companies “will face a big challenge to integrate LSE and DB1 at a time when UK is discussing and exit from and European Union as politicians can’t converge on views,” said Mr. Perfumo of Equity Research Desk in London.

Some fear the deal could play into the hands of E.U. skeptics who may seek to portray it as a German takeover rather than “merger of equals.” Perhaps partly to calm those concerns, the two companies are planning to maintain joint headquarters both in London and in Frankfurt, though Mr. Perfumo said he expects this to be a “temporary” solution.

Mr. Kengeter knows how tricky consent can be – also in Germany.

The incubator event in Frankfurt was a small gesture of his commitment to Frankfurt, after his predecessor, Mr. Francioni, relocated Deutsche Börse’s headquarters to the neighboring suburb of Eschborn – among other reasons, to avoid taxes.

Posing for the camera together with Mr. Al-Wazir, the Deutsche Börse boss looked out the window at the Frankfurt skyline and said, “It’s very beautiful here.”

“That’s true,” replied the economics minister. “But your predecessor left it.”


Thomas Ludwig is a Handelsblatt correspondent in Brussels. Michael Brächer covers markets for Handelsblatt in Frankfurt. Katharina Slodczyk reports from London. Frank Drost, a Handelsblatt financial correspondent in Berlin, Klaus Stratmann, the deputy bureau chief of Handelsblatt in Berlin, and Christopher Cermak of Handelsblatt Global Edition contributed to this piece. To contact the authors:

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