Anglo-German rift opens up as stock exchange tie-up approaches collapse

The London Stock Exchange’s £21 billion merger with Deutsche Börse fell apart today after the UK operator refused to comply with EU demands to hive off part of its Italian business.

But the LSE’s rejection of the EU request to sell its Italian government bond-trading arm, MTS, has fuelled in rumours of a rift with Frankfurt about the move, as well as the strength of the LSE’s commitment to the deal.

The group’s refusal to sell MTS looks set to kill off the deal, which has been mired in controversy since the Brexit vote.

LSE shares fell 105p, or 3.3%, to 3020p and Deutshe Börse fell 2.29 (195p), or 2.8%, to 79.22

The LSE agreed to sell-off its French clearing arm LCH.Clearnet in January to get the deal cleared but two weeks later the EU Commission unexpectedly opened up a fresh angle to a competition probe focusing on Italy.

The LSE said MTS is “systemically important”, meaning a sale would likely have involved disposing of the group’s entire Italian division.

The market said it offered an alternative proposal to the EU’s demands and these were rejected. The LSE board, chaired by Donald Brydon, met last night and voted to halt any further remedies, leaving the deal in limbo.

A collapse of the deal would allow LSE to pursue another potential merger, this time with New York Stock Exchange owner ICE which has been flagged as a potential buyer after expressing an interest last year.

City Eurosceptics, who had called for the merger to be halted for two years in a letter this month, welcomed the development. JML Group’s John Mills said: “This was part of the very bad trend of selling major UK assets to foreign interests. Larger and larger swathes of British interests are now being controlled abroad, and it weakens our position in the world. This was a very high-profile case of clear strategic importance, so I’m glad to see it’s no longer happening.”

Financier Edi Truell, chairman of Disruptive Capital, said he was “obviously pleased” by the news.

CMC Markets chief executive Peter Cruddas, another signatory, said: “It is only right such an important business as the LSE, which is integral to the City of London, should not be sold or merged ahead of Brexit.”