LSE in merger talks with Deutsche Boerse

The first sure sign for forthcoming merger between London Stock Exchange Group Plc and Deutsche Boerse AG is that there is reached agreement on key posts after completion of the deal. According to an official release of the two exchange operators, the CEO of Deutsche Boerse Carsten Kengeter will remain the same position in the new dominant European exchange operator, while CEO of LSE Xavier Rolet will retire

Just three days after British Prime Minister David Cameron set a date for a referendum on leaving the European Union, the London and Frankfurt-based market operators confirmed the discussions to create a business worth more than 20 billion pounds ($28 billion). Shares in both companies soared.

Acombination of LSE and Deutsche Boerse reflects the inexorable consolidation that has created a handful of titans overseeing much of the plumbing for global trading. The Anglo-German tie-up would have leading positions in equities,derivatives, indexes and clearing, leaving it in competition with just a handful of market operators in the U.S. and Asia.

“It’s very, very important in the context of the connectivity between the Americas, China as we’ve heard, and Europe, and of course London” that one of these global companies is based in the U.K., LSE Chief Executive Officer Xavier Rolet said .

Should regulators approve the all-share merger, LSE Group equity holders would own 45.6 percent of the enlarged group, while Deutsche Boerse stockholders would get 54.4 percent.

The chief executive officers of both companies are keen dealmakers. LSE’s Rolet has bought an index provider and expanded into clearing, while Deutsche Boerse boss Carsten Kengeter spent $1.5 billion in his first days in charge of Europe’s largest derivatives exchange.

An LSE-Deutsche Boerse deal would also create a stronger rival to CME Group Inc., the world’s largest derivatives market. That company was formed by the Chicago Mercantile Exchange’s 2007 acquisition of the Chicago Board of Trade. Then a year later, CME bought the New York Mercantile Exchange.

Discussions between companies don’t necessarily mean a deal will take place. The talks are ongoing, according to today’s statement. Should the firms agree to merge, their key businesses will continue to operate under their existing brand names. The board would have an equal number of directors from both companies.

LSE’s shares jumped 14 percent to 2,630 pence inLondon, their biggest rally since 2008. Deutsche Boerse climbed 3.2 percent to78.80 euros. The shares jumped after Reuters reported shortly after 1 p.m.London time that the companies are in the early stages of exploring a possible merger.