London Stock Exchange in merger talks with Deutsche Börse

The London Stock Exchange Group and Deutsche Börse said on Tuesday they were in talks over a “merger of equals” in a move that would create a European industry champion and one of the world’s largest exchanges for trading and risk managing derivatives.Shares in the LSE soared as much as 13 per cent to £26.14 while Deutsche Börse shares rose 2.8 per cent to €79.The surge in LSE’s share price gives it a market capitalisation of £13bn while Deutsche Börse had a market cap of €15.8bn.The combined company would create a European champion to rival US duo CME Group and Intercontinental Exchange, as well as Hong Kong Exchanges and Clearing, as the world’s largest exchanges group.The industry has emerged as winners from the financial crisis as sweeping legislation such as the US Dodd-Frank Act and Basel III have sought to curb off-exchange trading between banks. In its place, policymakers have mandated more transparency and trade processing that is standard business for a centralised market utility like an exchange.“The boards believe that the potential merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group,” the LSE said in a statement.The move echoes previous efforts to merge the two exchanges into a single dominant European exchange, most notably a decade ago when the 215-year-old LSE was fighting off bids from Deutsche Börse and Nasdaq.Under the leadership of Xavier Rolet for the past six years, the LSE has gone from defensive prey, fighting off bids from then larger rivals and Nasdaq, to challenging its German counterpart for the crown as Europe’s largest market infrastructure provider by market capitalisation.The deal would be structured as an “all-share merger of equals” under a new holding company.LSE shareholders would receive 0.4421 new shares in exchange for each LSE share while Deutsche Börse shareholders would receive one new share in exchange for each Deutsche Börse share. Deutsche Börse would hold 54.4 per cent of the enlarged company and the LSE the rest.