London Stock Exchange Group believes the European Commission is now unlikely to provide clearance for its merger with Deutsche Bourse, due to a request by the commission for LSEG to divest its majority stake in electronic trading platform MTS.
In a regulatory filing dated Sunday, LSEG said the commission requested a remedy proposal for the divestment of LSEG's majority stake in MTS by midday Monday. The request followed concerns raised by the commission related to LSEG's proposed sale of LCH SA, the French clearing subsidiary of LCH Group Ltd., whose majority owner is LSEG. A remedy was proposed addressing the EC's specific concerns over the LCH sale, but was rejected by the commission. “Instead, the commission required that the parties commit to the divestment of LSEG's majority stake in MTS to secure merger clearance.”
LSEG said MTS, a trading platform for European wholesale government bonds and other fixed-income securities, “is a systemically important regulated business in Italy,” and although not a major contributor to LSEG revenues, the group's Italian businesses represent a “significant proportion of LSEG Group revenues and profitability.”
Any change of control of the platform would require approval of Italian authorities, and would trigger parallel regulatory approval processes in other jurisdictions including the U.K., Belgium, France and the U.S., said the filing. It said following dialogue with Italian authorities, “the LSEG board believes that it is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSEG were to give the commitment.” Moreover, LSEG's board believes such a move “would jeopardize LSEG's critically important relationships with these regulators and be detrimental to LSEG's ongoing businesses in Italy and the combined group, were the merger to complete.”
The LSEG board concluded it could not commit to divest from MTS, and, based on the commission's current position, “LSEG believes that the commission is unlikely to provide clearance for the merger,” said the filing.
However, the filing added that the board remains convinced of the strategic benefits of the merger, and recognizes strong support from shareholders for the deal. “LSEG will continue to take steps to seek to implement the merger,” which is also conditional on regulatory clearances from Italian and other regulators, including the Bank of England.
LSEG and Deutsche Bourse announced in March 2016 they would merge their operations.
An LSEG spokeswoman declined to comment.