A big question mark hangs over Deutsche Börse merger with London Stock Exchange

The proposed £20 billion merger of Germany’s Deutsche Börse with the London Stock Exchange is still under scrutiny in the wake of the UK’s vote to ‘Brexit’ the EU, despite getting strong support from LSE shareholders.  

London Stock Exchange
Source: Bloomberg

London Stock Exchange shareholders may have given their strong backing to the proposed merger with its German peer, but Britain’s withdrawal from the EU provides a new framework for the deal, not least from a regulatory perspective. On top of that, criticism is increasing in Frankfurt given that that the combined group was supposed to be headquartered in London. 

'It is hard to imagine that the most important stock exchange is controlled in the euro area from a location outside the EU' said Felix Hufeld, president of the German financial regulator BaFin. 'There certainly has to be an adjustment here.'

BaFin can’t veto the deal, but Deutsche Börse is unlikely to ignore its concerns. And, it’s not the only organisation with the same concerns.

'A headquarters outside the euro area so far has been difficult to justify outside the EU' Savings Bank Association head Georg Fahrenschon says.

Volker Bouffier, the Prime Minister of Hesse, the region in which Frankfurt sits, also wants clarification on whether Hesse could continue to supervise the stock exchange if the holding company was based in London. 'This raises questions' he said.

While there are plenty in Frankfurt who think it will be politically difficult to implement a deal that would make London the centre of a European ‘super market’ in light of the Brexit vote, there are those who think a deal can still work.

German Börse supervisory board chief Joachim thinks it 'is now more important than ever to keep the financial link with the United Kingdom stable. The Frankfurt financial centre should take the lead and ensure the connection between Europe's largest economy and London as the largest financial centre in the world.'

A compromise could be headquartering the combined group in a different European city that’s still located in the EU. Amsterdam for example.

'The management of Deutsche Börse should question their recent merger plans critically and adapt massively or completely bury them' says Klaus Nieding, head of retail investor association DSW.

Shareholders in Deutsche Börse can now tender their shares until July 12 in a public exchange offer. But the deal still needs to get regulatory approval.

Technical analysis on Deutsche Börse: the correction continues

Deutsche Börse shares remain in a downtrend channel that’s been in place since last summer. It seems to be drawn towards support at around €70.00. The convergence of this historical support level accompanied by trendline support at €68.75 provide a crucial area which must hold. If this breaks, it could quite rapidly go down to the medium-term upward trend line currently at €65.40.

The current correction lower would only end if there’s a sustained break above the upper downtrend channel line, currently at €80.20. In the weekly chart, the falling weighted 40-week moving average is currently at €75.46. The rolling over of this indicator at the turn of the year provided a signal that we were set for a period of downside.

Should we break out of this descending channel, the intermediate high from July 2015 at €87.41 would be the first target on the way to new territory. 

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