German exchange operator Deutsche Boerse (DB1Gn.DE) is girding for an in-depth investigation by EU competition authorities of its planned $27 billion merger with London Stock Exchange Group (LSE.L), it said on Thursday.
“We expect that it will go in a phase II approach,” Deutsche Boerse Chief Financial Officer Gregor Pottmeyer told analysts, referring to the more complex process regulators use when they are concerned a merger may restrict competition.
Announced in February, the deal would bring together stock exchanges in London and Frankfurt as well as the derivatives trading of Deutsche Boerse’s Eurex to create one of the world’s largest exchange operators.
LSE and Deutsche Boerse shareholders have backed the proposal but it still faces hurdles, including concerns in Germany about a planned London headquarters post-Brexit.
Regulators in Brussels and the German state of Hesse also have to give their assent. The Commission’s phase II procedure involves extensive information gathering, including scrutiny of companies’ internal documents and the views of their competitors, to check the expected advantages of a merger can indeed be passed on to customers.
Deutsche Bank (DBKGn.DE) and HVB (part of Unicredit (CRDI.MI)) have spoken out in favor of the merger, but other banks have been more reticent, waiting for potential cost savings to be spelled out clearly.
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The phase II procedure gives the Commission 90 days to approve a deal but this can be extended if more information is needed.
Deutsche Boerse and LSE have yet to officially notify the Commission of their plans, but sources familiar with the process expect this to happen in late August or early September.
“We are aiming to file as soon as possible,” Pottmeyer told analysts on Thursday, adding that the parties still aim to close the deal in the first quarter of 2017.
German politicians and regulators have signaled they find it difficult to accept that the headquarters of the merged company would be based in London as planned, particularly in light of the UK’s vote to leave the EU, which could affect the way financial services are sold within the bloc.
A referendum committee formed by the merger partners is studying options, including moving the headquarters or setting up a double headquarters for the merged holding company, people familiar with the matter have told Reuters.
The committee will make recommendations to the two company boards to secure the deal’s closing and achieve its commercial objectives, Pottmeyer said.
Deutsche Boerse is due to publish the acceptance level of its official offer on Friday, after which remaining shareholders will be given a further two weeks – until Aug. 12 – to tender their shares.
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