American giant CME weighs potential bid for Deutsche Boerse

The Chicaco Mercantile Exchange (CME) is poised to become the second American markets giant threatening to gatecrash the proposed £20 billion merger of the London Stock Exchange (LSE) and Deutsche Boerse of Germany.

Deutsche Boerse - the German stock exchange - in Frankfurt. Picture: AP

The CME, one of the biggest derivatives exchanges in the world, is understood to have scrutinised both the London exchange and Franfurt-based Deutsche Boerse as possible takeover targets before the proposed cross-Channel “merger of equals” was announced last month.

It is believed CME sees the German operator as the more attractive acquisition. It follows Intercontinental Exchange (ICE), owner of the New York Stock Exchange on Wall Street, already confirming that it is weighing up a rival offer for the LSE although it has not yet formally approached the potential target’s board.

Under the terms of the one proposed deal currently on the table, the Frankfurt exchange would own 54.4 per cent of the enlarged group while the LSE would own the remaining 45.6 per cent.

The combined business would have a single board, made up of an equal number of directors from the two companies, and would be based in London.

It would be run by Carsten Kengeter, chief executive of Deutsche Boerse, while the LSE’s long-serving boss Xavier Rolet would step down.

This, together with the share split favouring German investors, has led some City analysts to bill the mooted transaction as a “takeover” rather than the merger both sides have portrayed it as. Political sensitivities are acute given the Brexit referendum for Britain looming in the background.

The British/German tie-up would spawn a European trading powerhouse to rival the financial strength of the CME, which has a stock market capitalisation on Nasdaq of £22.5bn.

The CME trades futures and options – financial contracts whose value is tied to the underlying value of a share price, bond, currency or commodity. The group was unavailable for comment in Chicago yesterday.

ICE, meanwhile, has appointed investment banks Morgan Stanley and Moelis to advise it and is expected to make a counter-offer for the London exchange by Tuesday, 29 March – the City Takeover Panel’s deadline for the would-be suitor to either “put-up-or-shut-up”.

One analyst said: “Things are interestingly poised. Whenever two big organisations signal they are interested in a deal it effectively puts them in play for other approaches.

And this now looks highly likely in the case of ICE and the LSE, and quite possibly with the Chicago Mercantile Exchange and Deutsche Boerse.”

LSE announce a 31 per cent jump in annual earnings to £643 million last Friday. Rolet has said the Frankfurt transaction is a “compelling” opportunity in “an industry-defining combination”.