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Retail investors come out against Deutsche Boerse-LSE merger

The European Investors’ Association says the merger will significantly reduce competition. Retail investors have come out against the proposed merger of Deutsche Boerse AG and the London Stock Exchange Group plc, citing decreased competition.

The European Investors’ Association, a retail investor lobby group, have written a letter to European Competition Commissioner Margrethe Vestager calling for her to not approve the merger.

European Investors’ chairman Paul Koster wrote that the association is “highly concerned” about the implications of the merger, especially given the EU’s capital markets union project, due to the sheer scale and dominance of the proposed combined exchange.

“The merger of LSE/DB means that in several critical market segments we move from a situation where there is substantial competition among three major market players to a quasi-monopolistic one in which merged entity is overly dominant,” Koster said.

The EU’s planned capital markets union is designed to boost investment and broaden access to finance for companies. The group argued that this and many of the provisions laid out in Markets in Financial Instruments Directive are only possible in a market with an appropriate level of competition.

The merged entity’s dominant position would attract larger and international investors to the combined exchange at the expense of smaller competitors, the group said, and this could force smaller companies into a dual listing.

The group also questioned the impact Brexit will have on the European regulatory system. “There is however a real possibility that companies seeking a listing on LSE/DB will circumvent DB, thus avoiding important EU rules in areas where the U.K. regime seems more malleable,” the letter stated.

The exchanges announced an all-stock deal in mid-March to form a new powerhouse with dual headquarters in London and Frankfurt, led by Deutsche Boerse CEO Carsten Kengeter. Deutsche Boerse shareholders are to get 54.4% of the combined entity and London Stock Exchange shareholders 45.6%.

However, the tie-up has looked vulnerable since the U.K. voted to leave the European Union in June.

Last week, the merger secured support from more than 60% of Deutsche Boerse investors. On July 11, Deutsche Boerse reduced the minimum acceptance threshold for its merger with London Stock Exchange plc from 75% to 60% and extended the offer period by two weeks.

LSE investors backed the proposed merger at its July 4 shareholder meeting.

The merger now faces regulatory approval. The deal has gotten the nod from regulators in the U.S. and Russia but it could be met with roadblocks in Europe. It has been reported that German regulators are questioning the merger in a post-Brexit world. Along, with European Investors, politicians and watchdog groups have petitioned the EC to block the merger on grounds that euro trades should not be cleared outside the currency bloc.

German politicians have also questioned how Europe’s biggest exchange can be headquartered in a country that is no longer part of Europe.

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This article is an excerpt from the ‘Europe Daily Briefing’, a new online newsletter published by EACCNY member The Deal. The Europe Daily Briefing delivers actionable intelligence on M&A, private equity and people moves designed for deal professionals. To learn more about The Deal® and our services please contact Hugh Murphy,