Deutsche Börse lowers tender offer to save LSE deal

The operator of the Frankfurt stock market said on Monday that it now requires that shareholders tender 60% of their stock in contrast with the original takeover terms in which at least 75% of the shares needed to be exchanged for new shares in the merged company.

The move is the strongest sign yet of how committed both companies are to their tie-up despite mounting questions following the UK’s vote to leave the European Union.

The German exchange group had been concerned that the tender offer for its shares could fail to secure more than 75% of its stock by an original Tuesday deadline. The acceptance period now runs through July 26. As of Friday, 25.7% of Deutsche Börse shares had been tendered.

Some big Deutsche Börse shareholders had said privately they understood the strategic rationale of the deal, but were hesitant to tender because of uncertainty about how Brexit might affect it. The issue is pressing because the deal would fall apart if enough shares aren’t tendered.

Acquirers in Germany are free to choose a minimum acceptance hurdle on which a tender offer hinges, but most choose a 75% threshold because it gives wide-ranging control over a target under German law.

Deutsche Börse is optimistic it can win over holders of more than 75% of its shares in the extended offer period which would start should the company secure more than 60% of shares by July 26.

“This change in procedure is a purely technical one. We are confident [we can] reach the 75% threshold in the course of the full tender process,” said Deutsche Börse chief financial officer Gregor Pottmeyer.

Deutsche Börse and LSE are confident they can realise the announced synergies of €700 million despite a potentially lower acceptance level on the German side, according to people familiar with the merger discussions.

The so-far low response rate from Deutsche Börse investors contrasts with the response LSE received from its shareholders. More than 99% of its shareholder base voted in favor of the deal at a special meeting last Monday.

Industry observers have said the drop in the pound and potentially lower trading volumes on the LSE after Brexit have shifted the benefits of the merger toward LSE.

Complicating a successful completion of the tender offer is Deutsche Börse’s investor base. Around 15% of its shares are held by index-tracking funds, according to Deutsche Börse. Those generally tender their stake only in the two-week extended-offer period that starts following a successful initial offer period.

“With this [reduction in the threshold] we respect the technical barrier of up to 15% of our shareholders namely Index Funds, which are not able to tender their shares prior to the replacement of the untendered shares by the tendered shares in the respective index,” said Pottmeyer.

Completion of the offer would get the exchange merger into the next stage, where it needs to obtain regulatory approval from antitrust authorities, local watchdogs and governments.

Germany’s financial regulator, BaFin, has already said it opposes the current plan, under which London would become headquarters for the holding company of the combined operations. Felix Hufeld, BaFin’s president, said on June 28 that “without doubt…it is hard to imagine that the most important exchange venue in the eurozone would be steered from a headquarters outside the EU.”

Many politicians in the ruling coalition in Hesse, where Frankfurt is located, tend to agree and some have vowed publicly to move the holding company to Frankfurt.

But German Finance Minister Wolfgang Schäuble said “the question of the holding’s headquarters isn’t the most important question”.

He said it was more important to see which business fields will stay in Frankfurt and which in London. “I believe that it is indeed important that the responsible authorities have a close look at this,” he said.

One of the largest investors in Deutsche Börse came out in support of its merger last week, saying it shouldn’t be torpedoed by “political sensibilities” surrounding a UK exit from Europe. Alexander Darwall, a fund manager at Jupiter Asset Management, said the deal “succeeds in delivering efficiency and scale so that savings can be passed on to customers”.

Write to Ulrike Dauer at ulrike.dauer@wsj.com and Eyk Henning at eyk.henning@wsj.com

This article was published by The Wall Street Journal

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