CME CME Group Inc

By Eyk Henning in Frankfurt, and Ian Walker and Giles Turner in London 

London Stock Exchange Group PLC and Deutsche Börse AG on Wednesday agreed to an all-share merger, creating Europe's biggest securities-markets operator worth more than $30 billion.

The companies said the combination would generate about EUR450 million ($499.9 million) of cost savings a year and offer the opportunity to boost revenues. The figure is above what most analysts had expected.

However, while LSE and Deutsche Börse executives promoted the merits of the deal, the attention of some investors is now on a potential counterbid for the LSE, whose shares trade at roughly a 7% premium to the deal terms, bankers and traders say.

U.S. rival Intercontinental Exchange Inc., the operator of the New York Stock Exchange, said earlier this month that it was considering a possible bid for the LSE. A spokesman for ICE couldn't immediately be reached for comment.

"It is the right time to make such a transformational deal," Deutsche Börse Chief Executive Carsten Kengeter said, adding that the combined company would be the world's largest exchange operator by income. Mr. Kengeter will be CEO of the combined company.

Of the merged entity, 45.6% will be owned by LSE shareholders and the rest by Deutsche Börse shareholders.

The combined company will be worth about $30.5 billion based on Tuesday's closing share prices. Shares in Deutsche Börse rose about 1% in early trading Wednesday, while LSE eased 0.3%.

The two exchange operators announced last month that they were in talks. Since then, ICE said it was considering making an offer for LSE. Chicago's CME Group Inc. might also be in the running, according to a person familiar with the matter. Hong Kong Exchanges & Clearing Ltd. has said it is closely watching the discussions between LSE and Deutsche Börse.

The deal especially puts pressure on ICE to come forward with a counterproposal, according to people familiar with the transaction.

Shareholders in both the LSE and Deutsche Börse said they are expecting a bid from a U.S. rival. One Deutsche Börse shareholder, who declined to be named, said "we are expecting a counterbid" from either ICE or the CME.

A major U.K. shareholder in the LSE said: "We don't want a full share deal. We would expect some cash" from an ICE counterbid.

For the merger to go through, at least 75% of shares in Deutsche Börse need to be tendered, while at least 75% of LSE shareholders need to vote in favor of the deal.

The expected EUR450 million in cost savings is higher than what most analysts had expected and could make the combination more attractive to shareholders of both companies, increasing the chances of the deal going through.

Still, the planned tie-up of the two European rivals isn't a done deal as it would face a number of hurdles, such as regulatory approval by the European Union's antitrust authority and local supervisors. The EU in 2012 blocked a proposed merger of Deutsche Börse and NYSE Euronext.

The deal is conditional on receiving competition clearance from European Union, the U.S. and Russia. The exchanges have already begun discussions with a number of regulators.

The combined company will employ more than 10,000 staff and have over 3,200 companies listed on its markets, with a combined market cap of EUR7.1 trillion, as of data from the end of 2015. The combined total Income of EUR4.7 billion in 2015 means the merged entity would be the world's biggest exchange group.

The company will be led by Deutsche Börse's Mr. Kengeter as CEO, while LSE Chairman Donald Brydon will chair the board. The LSE's Chief Financial Officer David Warren will be the group's finance chief.

On completion, LSE CEO Xavier Rolet will step down but become adviser to the chairman and deputy chairman to assist with a successful transition.

The newly created exchange would be domiciled in London with a head office in both London and Frankfurt.

Mr. Kengeter said the terms of the deal won't be changed if the U.K. votes to leave the European Union in a referendum later this year.

However, the companies have created a referendum committee to examine the "ramifications" of the U.K. potentially leaving the EU. They add that "the outcome of that vote might well affect the volume or nature of the business carried out by the combined group," but add that "the outcome of the referendum is not a condition of the merger." Joachim Faber, the Deutsche Börse chair, will lead the committee.

Ulrike Dauer in Frankfurt contributed to this article.

Write to Eyk Henning at eyk.henning@wsj.com, Ian Walker at ian.walker@wsj.com and Giles Turner at giles.turner@wsj.com

(END) Dow Jones Newswires

March 16, 2016 07:06 ET (11:06 GMT)

CME (NASDAQ:CME)
Historical Stock Chart
From Jun 2024 to Jul 2024

CME (NASDAQ:CME)
Historical Stock Chart
From Jul 2023 to Jul 2024