Third time is the charm?

So on this weeks blog I’m going to look at mergers and acquisitions and the current story that caught my attention this week is the LSE and Deutsche Börse deal. These talks aren’t even the first or second time but the third time these two companies have tried to merge together. Below are just three of the problems that LSE and Deutsche Börse will have to deal with in this merger.

This current deal will see the two largest European exchanges working on an all-share “merger of equals”. Is it even possible for mergers to be equal? At present Deutsche Börse is the bigger of the two companies and will end up with 54.4% of the merged company. It will be based in London but will have headquarters in London and Frankfurt.  It’s strange to me that businesses can think that a merger will be completely equal when previous examples have shown that it can’t work. Forbes states that these corporate marriages of equals ‘in which two firms of roughly similar size combine, with neither a buyer nor a target and typically no cash changing hands—account for a disproportionate share of disastrous failures’.  

One examples of the “merger of equals” failing are the union of Daimler and Chrysler. After two years of the merger Jürgen Schrempp managed to see off the former CEO of Chrysler and was the only person running the new company.  The former CEO of Chrysler later stated the term “merger of equals” was just used by Jürgen Schrempp to get Chrysler to merge with him. 9 years after the merge it fell through and the companies went their separate ways. Another failed "merger of equals" was Maurice Lévy with Omnicom. Thus with this is LSE and Deutsche Börse deal really a “merger of equals”?

With the current uncertainty of whether the UK will stay in the EU the present Deutsche Börse CEO has stated “a decision by the United Kingdom electorate to leave the European Union would put the project at risk”.  Both companies believe that whatever the results of the referendum the merger makes strategic sense and wouldn’t be a condition of the merger. However if the UK leave the EU it would have huge effects for the merger and it seems logical that most of the operations would move back to Frankfurt.

Their first failed attempt was back in 2000, where Deutsche Börse were in talks of a merger but the deal was gatecrashed by Sweden’s OM Exchange who tried to gain LSE through a hostile takeover. And this could be a huge worry for this current merger. The ICE and CME may both decide to acquire a key part in the European market; and so they could both place an offer for LSE. As much as these two competitive offers have been rumored, I feel if they decide to bid neither of these two companies will be successful. Merging with a company across the North Sea is a lot more feasible than across the Atlantic with one set back being time zone differences. But if nothing else this could be classed as a pac man defense and will drive up the price Deutsche Börse will pay.

With all of these factors and Jensen and Ruback’s research showing that on average the bidding company makes no gain with a merge is all of this hassle with LSE and Deutsche Börse merger worth it?

Thank you for reading it and I would love to hear your thoughts on the merger.