The London Stock Exchange and Deutsche Boerse merger will be 'industry-defining'

The forthcoming merger between the London Stock Exchange and the Deutsche Boerse will create an “industry defining combination”

The LSE released its preliminary financial results for the year ending December 2015 on Friday, and it’s doing very nicely, but all eyes are on what the exchange has so say about its mega-merger with Deutsche Boerse, a move that would create one of the single largest exchange groups on earth.

Commenting on the LSE/Deutsche Boerse merger, the exchange’s chief executive Xavier Rolet said:

“We have recently confirmed that we are in detailed discussions with Deutsche Börse regarding a potential merger of equals. This represents a compelling opportunity to strengthen each other in an industry-defining combination, by creating a global market infrastructure group with significant benefits for our customers and shareholders.”

The deal, first proposed in May 2001 but then abandoned, is at an advanced stage and the two groups are “in detailed discussions about a potential merger of equals of the two businesses,” according to an earlier statement from the LSE.

A merger between the companies almost happened in 2001, but was scuppered by a bid from Sweden’s OM for LSE. Deutsche Boerse tried again in 2004 but abandoned the bid in 2005.

In the results statement released on Friday morning, the London Stock Exchange also expands a little on the details of the merger saying (emphasis ours):

The Boards believe that the potential merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group. The combination of LSE and Deutsche Börse’s complementary growth strategies, products, services and geographic footprint would be expected to deliver an enhanced ability to provide a full service offering to customers on a global basis.

LSEG and Deutsche Börse believe that the potential merger would offer the prospect of enhanced growth, significant customer benefits including cross-margining between listed and OTC derivatives clearing (subject to regulatory approvals), as well as substantial revenue and cost synergies and increased shareholder value. All key businesses of LSEG and Deutsche Börse would continue to operate under their current brand names.

Elsewhere in the results statement were LSE’s actual financials for last year, and its doing pretty nicely. Here are some of the highlights:

  • Total income up 72% to £2.38 billion, up from £1.38 billion in 2014.
  • Total revenue up 78% to £2.28 billion, compared to 2014’s £1.28 billion.
  • Total operating expenses hit £1.05 billion – up 1% on an “organic and constant currency basis”. The Group put this down to investing in “growth initiatives”.
  • Total operating profit up 27% at £709.6 million.
  • The firm’s final dividend will jump 20% to 25.2 pence per share this year.

Here’s what Rolet had to say about the results:

“The Group has produced another strong financial performance and continues to make excellent progress executing our strategy to be a leader in global markets infrastructure. We have delivered underlying growth in each of our business areas and maintained good cost control. We have further strengthened the Group through integrating recent acquisitions and developing innovative new products.

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