EU regulators decry blame for collapsing stock exchange merger

Brussels rejected claims that EU merger regulators sprung a trap for the London Stock Exchange’s planned €29 billion tie-up with Deutsche Börse, pointing instead to growing divisions between the parties and political opposition from national capitals.

The LSE’s shock announcement Sunday night said it expected the European Commission to brandish a veto after making unexpected demands: selling its majority stake in MTS, an Italian platform for trading bonds. The unusual announcement sets the scene for the Commission to block the deal between Europe’s two largest exchanges by April 3, just days after the U.K. is expected to trigger the process for exiting the EU and the European single market.

The LSE said Commission investigators requested concessions that were “disproportionate” and unpalatable to regulators in Italy, while imposing deadlines for the parties to comply that were unreasonable.

“They submitted their concessions very late,” responded one senior Commission official who requested anonymity because of the confidentiality of the review process. (A Commission spokesperson declined to comment.) The two companies formally told the Commission they were prepared to sell French subsidiary LCH SA on February 6, the last possible day for them to make concessions despite announcing the sale in the autumn.

The official also pointed to Deutsche Börse’s surprise at the LSE’s statement as an indication the merger process had been advancing.

Just last week, people close to the deal were briefing that the parties planned only to “tweak” an earlier offer to divest a French subsidiary of the LSE. Negotiations were intense last week, said one official, but “this didn’t seem to be a fatal issue.”

Others involved in the review process back that view.

“If it is true that LSE was asked to offer MTS [as claimed by the LSE] and refused, it’s fair to say they are walking away from the deal, because given the statement of objections, the required concessions could have been way more significant,” said Jacques Lafitte, a consultant at AVISA, who is a longtime adviser to Nasdaq.

The Commission’s concerns “were pretty clearly flagged,” said one third-party adviser, pointing to the Commission’s public statement when it opened its probe, as well as objections issued in December. “It surprises me they thought that selling 3 percent of their combined revenues could do it.”

Observers point out the deal is facing many political headwinds — from uncertainty over Brexit to politicians in the U.K. and Germany agonizing over who will control the new entity, to ministers in France, the Netherlands, and elsewhere complaining the deal will harm competition.