In an attempt to assuage concerns within Germany, Deutsche Boerse’s Kengeter kicked off a lobbying tour of Berlin, targeting the country’s highest level politicians to win backing for the deal. Yet his efforts were misdirected, according to the German press. While Berlin’s politicians were less flustered over the headquarters’ location, politicians in the German state of Hessen, home to the financial capital Frankfurt and Deutsche Boerse, were significantly more concerned over the idea of their crown jewel of a European exchange sacrificing its local headquarters.
Kengeter’s apparent failure to manage the political element of the merger process could have had something to do with his enthusiasm for a London headquarters, according to reports in the German press – indeed, the U.K. capital is where his family resides and much of his daily business unfolds.
CNBC contacted both the LSE and Deutsche Boerse who declined to provide on-the-record comments.
Many other elements beyond national politics have been highlighted as potential contributors to the current rockiness of the deal’s prospects, including the LSE’s wish to tread carefully around its relationship with the Italian regulator; insider trading accusations levelled against Kengeter, which he has denied; strategic interference by motivated third parties such as Euronext and the European Commission; and the possibility for a better future for the LSE with another suitor. This despite widespread support for the sound economic rationale of the deal for both customers and shareholders alike.
Indeed, while “the chances of the deal completing were finely balanced from the outset,” according to analysts at Citi in a note published Monday, their peers at Commerzbank suggest that a standalone future looks significantly brighter for the LSE than for Deutsche Boerse.
“We believe LSEG offers the best combination of structural growth and future M&A potential,” said the Commerzbank analysts in a note on Tuesday, citing the U.K. exchange’s exposure to secular growth trends, its partnership approach and favorable regulation and cost-cutting initiatives.
“Even after the potential failure of the merger with Deutsche Boerse, LSEG is likely to remain on the M&A radar as a potential takeover target: Well-performing assets are hard to find and extremely expensive in a consolidating industry,” the note added.
Meantime, the same analysts cut Deutsche Boerse’s 2017 and 2018 earnings forecasts, highlighting a subdued start to the trading year.