London Stock Exchange Group

Update on the European Commission Phase II proceedings

On 28 September 2016, the European Commission (“Commission”) announced the commencement of Phase II proceedings in connection with its review of the proposed merger between London Stock Exchange Group plc (“LSEG”) and Deutsche Börse AG (“Deutsche Börse”) (the “Merger”). As announced on 7 February 2017, the Commission began a period of market testing based on LSEG’s and Deutsche Börse’s submitted commitments, comprising of the proposed sale of LCH SA to Euronext N.V..

On 16 February 2017, the Commission unexpectedly raised new concerns about the viability of the LCH SA remedy in relation to access to bond and repo trading feeds currently provided by MTS S.p.A (“MTS”). The merger parties presented an improved and clear-cut structural remedy to complement the divestment of LCH SA, which addressed the Commission’s specific concerns. This improved remedy was, in the parties’ view, effective and capable of ready implementation, but it 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. Notwithstanding that LSEG regards the required MTS remedy as disproportionate, LSEG tested thoroughly the feasibility and implications of this remedy.
Following further detailed discussions, the Commission requested that the parties formally submit a remedy proposal for the divestment of LSEG’s majority stake in MTS by 12pm (CET) on Monday, 27 February 2017.

MTS is a leading regulated electronic trading platform for European wholesale Government Bonds and other fixed income securities. It is a systemically important regulated business in Italy due to its significant role in the trading of Italian Government bonds and other securities. Although MTS is not on its own a major contributor to LSEG Group revenues, LSEG’s Italian businesses represent a significant proportion of LSEG Group revenues and profitability.
Any change of control of MTS would require, in particular, the approval of the Italian authorities and would trigger parallel regulatory approval processes in other jurisdictions including the UK, Belgium, France and the USA.

Following dialogue with Italian authorities about the Commission’s required remedy and given prior discussions between the principals and Italian authorities regarding LSEG’s Italian businesses in the context of the Merger, 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, the LSEG Board believes the offer of such a remedy would jeopardise 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.

LSEG has always been committed to maintaining excellent relationships with all its stakeholders, including the regulators in its significant markets. Its business is built on trust and transparency with its regulators, and this has been fundamental to sustaining its successful growth over many years.
Taking all relevant factors into account, and acting in the best interests of shareholders, the LSEG Board today concluded that it could not commit to the divestment of MTS. LSEG will therefore not be submitting a remedy proposal with respect to MTS. Based on the Commission’s current position, LSEG believes that the Commission is unlikely to provide clearance for the Merger.

Nevertheless, the LSEG Board remains convinced of the strategic benefits of the Merger and recognises the strong support from shareholders for the transaction. LSEG will continue to take steps to seek to implement the Merger. In addition to Commission clearance, the Merger is conditional on regulatory clearances from Italian regulators and all relevant regulators including the Bank of England, FCA, BaFin and the Hessian Exchange Supervisory Authority (“HESA”), as well as all other relevant regulators and authorities in all other countries in which LSEG operates. While discussions are being progressed with a number of these regulators, the regulatory process has not yet been concluded and formal engagement has not yet begun with HESA.

The LSEG Board is highly confident in the strength of LSEG’s business, strategy and prospects on a stand alone basis, under its strong management team led by Chief Executive Xavier Rolet. LSEG will announce Preliminary Results for the year ended 31 December 2016 on 3 March 2017. LSEG expects to report strong progress across all business areas and has continued to invest to drive multiple growth opportunities. The group continues to deliver on its successful strategy based on customer partnership and the Open Access model and is strongly positioned to make further progress as a well diversified financial markets infrastructure business with a global footprint.

N.B. – The text does not bind the staff of LMFInternational. Only the companies, organizations and associations which sign the press release and which are clearly indicated in the title of the text, are responsible for its information and contents.