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London Stock Exchange and Deutsche Borse merger 'could fail in event of Brexit'

Published 15/06/2016

The deal would be put in jeopardy post-Brexit according to the Economist Intelligence Unit
The deal would be put in jeopardy post-Brexit according to the Economist Intelligence Unit

The proposed £21 billion merger between the London Stock Exchange (LSE) and Deutsche Borse could collapse if the UK opts for leaving the European Union, a hard hitting report has warned.

The deal would be put in jeopardy post-Brexit by the erection of barriers to cross-border capital markets transactions and a lack of political support, according to the Economist Intelligence Unit.

As part of a doomsday scenario timeline by the group, which outlines a litany of negative repercussions of leaving the EU, it says: "2016: Planned LSE-Deutsche Borse merger fails as the result of expected barriers to cross-border capital markets transactions."

Steven Leslie, lead financial services analyst at the EIU, added: "This merger is highly political, and if the UK votes to leave then the political support for the deal will collapse.

"German politicians won't be happy to have their exchange merge with Britain's exchange when it has just opted to leave the EU. Also, both exchanges currently operate under common rules. If the UK leaves, then they could have to operate under inconsistent capital markets rules and, while it doesn't make the deal impossible, it's not a positive."

The two firms have previously claimed the deal is Brexit-proof, saying that the outcome of the referendum "is not a condition of the merger".

On Tuesday, a Deutsche Borse spokesman said: "We would like to see the UK staying in the EU. Yet, even in the event of a vote for Brexit, the link between the eurozone and the City of London provided by the proposed merger would remain just as key."

Nevertheless, both sets of shareholders will have time to digest any potential implications, with investors in LSE voting on the all-share deal on July 4 and Deutsche Borse investors able to tender their shares until July 12.

Details of the deal show that the combined entity aims to make hundreds of millions in annual cost savings and shed 1,250 jobs.

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