Nick Goodway: Let’s not rush this stock exchange merger

Shares in the London Stock Exchange are still trading at a premium of well over 10% to the value placed on them in the proposed takeover by Deutsche Börse. That’s something like a premium of 200p with LSE shares at 2760p.

There are two straightforward but related reasons for this. The first is that LSE shareholders do not believe they are being offered enough to cede control of a business which has grown and flourished under chief executive Xavier Rolet’s brisk acquisitions policy. They feel the sum of the parts that Rolet has brought together is simply not reflected in the merger terms, which will give the Germans 54.4% of the combined exchanges.

The second is that with Intercontinental Exchange in the wings and the Chicago Mercantile Exchange in the stalls (one has declared a potential interest in bidding for LSE, the other is biding its time), we could still have a full-scale bid battle on our hands. And that will mean not just a higher offer but more likely one that involves at least some, if not all, cash rather than some TopCo new paper shares.

Despite Deutsche Börse chief executive Carsten Kengeter’s reported comment to his staff that “the merger is God-willed” (my German is poor but he apparently he said “Die Fusion ist gottgewollt”), this is a matter which will be settled on earth not in heaven.

Given that my links to the celestial are far from perfect, I have had to stick with my terrestrial contacts. Several of them are far from happy with the present deal. It’s not that they are Little Englanders who fundamentally oppose anything with the word London in it being taken over by anything with the word German in it. Even my contacts have moved on from the Blitz.

But some of them do tell me they feel a bit short-changed. However it is dressed up, this is a takeover and one where there is no premium being paid. Yes, I hear the arguments that the biggest shareholders in both businesses are Americans, but control of the company — even if its is headquartered in London — will eventually be in Germany. (Just check some of the stuff Kengeter has been saying to the press in Hesse, the state in which Deutsche Börse is regulated.) The 450 million (£352 million) of identified savings do seem relatively meagre given the relative sizes and overlaps of the two businesses. Many people think that number could go far higher given time.

In light of the LSE shares’ 250% rise over the past five years, some argue that its backers should not be over-greedy and should welcome Deutsche Börse at the third time of asking. But there is a sound case for saying investors who backed Rolet, not least in 2014’s £938 million rights issue to buy Frank Russell, had faith in a future slightly more than two years out.

The noises I am hearing so far are murmurings of disquiet, not the throaty roar of outright revolt. But noise there certainly is. ICE and CME still have the best part of 50 days to come up with better offers for the LSE. In the meantime, the current merger partners would do well not to suggest that they will try to rush their marriage through before the Brexit vote.