London Stock Exchange Says Its Merger Is Unlikely to Win Approval

London Stock Exchange Says Its Merger Is Unlikely to Win Approval

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The entrance to the London Stock Exchange. The London Stock Exchange Group’s most recent effort to merge with Deutsche Börse was the companies’ third attempt to come together since 2000.

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Andy Rain/European Pressphoto Agency

LONDON — The London Stock Exchange Group said late on Sunday that European regulators were unlikely to approve its merger with Deutsche Börse, which would have created a European heavyweight in a rapidly consolidating industry.

The London exchange said regulators at the European Commission had made the sale of its majority stake in MTS, an electronic platform for trading European government bonds and other fixed income products, a condition for approval of the Deutsche Börse transaction.

The London exchange said that was unpalatable, calling the remedy “disproportionate.”

“Taking all relevant factors into account and acting in the best interests of shareholders, the L.S.E.G. board today concluded that it could not commit to the divestment of MTS,” the London exchange said in a news release. “Based on the commission’s current position, L.S.E.G. believes that the commission is unlikely to provide clearance for the merger.”

The London Stock Exchange and Deutsche Börse had hoped to create a potential European champion by combining stock exchanges in Britain, Germany and Italy, as well as several of Europe’s largest clearinghouses. The combined company would have been Europe’s largest operator of stock markets by far.

The exchanges agreed in March to a merger, and shareholders from the two exchanges approved the deal in July. It was the companies’ third attempt to come together since 2000.

The Intercontinental Exchange, the owner of the New York Stock Exchange, had been seen as a potential rival in the deal but opted in May not to pursue a counteroffer.

In September, European regulators opened an investigation into the merger, looking at the effect it could have on competition in financial markets. The clearing of trades was one of several areas being explored in the inquiry.

In hopes of winning approval for the deal, the London Stock Exchange Group said in December that it was in exclusive talks with Euronext over the sale of LCH S.A., the French operating arm of the LCH.Clearnet Group. The London exchange said at the time that it was seeking to “address proactively antitrust concerns raised by the European Commission.”

Euronext said in January that it had signed a binding offer of 510 million euros, or about $538 million, for all of LCH S.A. The sale was contingent on the approval of the Deutsche Börse-London Stock Exchange transaction by European regulators.

On Sunday, the London exchange said that the European Commission had unexpectedly raised new concerns this month about the sale of LCH S.A. in relation to access to bond trading.

“The merger parties presented an improved and clear-cut structural remedy to complement the divestment of LCH S.A., which addressed the commission’s specific concerns,” the London exchange said. “This improved remedy was, in the parties’ view, effective and capable of ready implementation, but it was rejected by the commission.”

The London exchange said any change of control of MTS would require approval by regulators in Italy and would trigger additional regulatory processes in Belgium, Britain, France and the United States.

After discussions with Italian regulators, the exchange said it was “highly unlikely that a sale of MTS could be satisfactorily achieved,” even if its board were to commit to the sale.

The London exchange also said the remedy would “jeopardize” its relationships with Italian regulators and be detrimental to its businesses in Italy and the combined company if the merger were to be completed. The company operates the Borsa Italiana, in addition to the London Stock Exchange.

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