It was a close call: At the last minute, the shareholders of Deutsche Börse gave a green light for the merger with the London Stock Exchange (LSE).
But the biggest challenge still lies before Deutsche Börse’s chief executive Carsten Kengeter.
First, the competition watchdogs of the European Commission must decide whether the deal endangers competition in Germany. Their reservations already doomed his predecessor Reto Francioni’s plans to merge with the New York Stock Exchange. But concessions such as separating some areas of business could well defuse opposition in Brussels.
At the moment, it's difficult to say what concessions the British side would be ready to make. Since the Brexit vote, the LSE has been keeping a low profile.
The next hurdle is the exchange supervisory authority in Hesse, which can block the deal if it sees danger to the development of the Frankfurt stock exchange. Herein lies the greatest danger. Because the agreement is that the legal domicile of the company should be London. This is said to have been stipulated by the British government. But at the latest since the British vote to leave the E.U., that won’t be accepted by the German monitors. A new solution is needed.
Since the Brexit referendum decision, both stock exchanges have organized committees and held meetings behind closed doors. The situation resembles a chess game on several levels: Negotiations are going on in Germany, in Great Britain and between the two partners. As calls from Hesse grow louder that the super-exchange have its headquarters in Frankfurt, Deutsche Börse strengthens its negotiating position toward the LSE. But the danger of failure increases at the same time, because an agreement between the two camps could become impossible.
Professor of political science Robert Putnam calls such negotiations a “two-level game.” Something that seems opportune on one level, for example headquarters in Frankfurt, can be impossible to push through on the other level. Professor Putnam has shown how players can resolve seemingly insoluble problems with a clever chess move. The crux is in tying up the right package. The location seems to be a line in the sand for both parties. But that demarcation can be shifted by linking the issue to concessions – for example, promising to locate certain commercial sectors at a particular place.
But this is where the real problem lies. At the moment, it’s difficult to say what concessions the British side would be ready to make. Since the Brexit vote, the LSE has been keeping a low profile. For good reason: No one knows today what the British-European relationship will look like in the future. Mr. Kengeter is playing chess blindfolded. It’s quite possible that he’ll lose the game.
Michael Brächer writes about finance for Handelsblatt. To contact him: email@example.com.