Deutsche Börse-LSE deal: would it impact IR?

As Deutsche Börse has once again proposed a so-called merger of equals with the London Stock Exchange – the third attempt to bring these European exchanges together – we look at what the potential impact might be for IROs.

Both Herbie Skeete, managing director of exchange intelligence firm Mondo Visione, and David Lloyd-Seed, deputy chair of the UK’s IR Society, agree that while savings are likely to be made – and ultimately passed on to customers – there’s likely to be little change as far as IR is concerned.

The last time the two exchanges tried to merge, in 2004, Skeete says the plan was to create a single unified exchange: ‘That presented certain problems, though, such as the possibility of German companies being subject to UK rules, for example.’

This time ‘those issues seem to have been sidestepped – at least initially,’ says Skeete. And as the Financial Times reports, citing people close to the two sides, the European trading giant would be based in London but headed by the German group’s chief executive, Carsten Kengeter.

But what about the impact? If all goes as planned, Skeete says there could be some significant cost cuts to be made, with some analysts estimating savings of around €300 mn ($334 mn), and some much higher. ‘Some of that should be coming back to cut the cost of IPOs and ongoing fees, and London is already expensive for listing,’ he says. ‘Then there are things like the cost of market data, which ‒ again ‒ are already extremely expensive.’

Lloyd-Seed agrees: ‘I guess the principle is that it will hopefully reduce costs, or improve value for money for the services that listed companies get, and that the merger will preserve the interests of those that provide the exchange’s revenue stream: listed companies.’

He still has a few pointers for areas IROs should keep an eye on, however. ‘The things generally to watch out for are ‘cost creep’ – both absolute and hidden – administrative burden and the risk of getting lost in a bigger pool,’ he notes.

‘But I think most of those things will be far outweighed by the advantages of the merger, which should create efficiencies within the exchanges themselves as well as [increasing] the potential access to innovative thinking in widening the pool of capital companies can go for.’

There’s still a potential rival bid from Intercontinental Exchange, however, and commentators predict some other big players might also be considering their own bids. Despite that, Deutsche Börse announced on Wednesday that it has agreed to sell International Securities Exchange, its US options business, to Nasdaq for $1.1 bn, in what Skeete deems ‘a bit of tidying up’ in preparation for – or anticipation of – of the deal going through.