London stock exchange
LSE confirmed it was in talks with Deutsche Boerse about a merger dealGetty

The London Stock Exchange (LSE) has confirmed it is in talks over a potential merger with Deutsche Boerse to create a European global markets infrastructure group. "Further to the recent movement in LSE's share price, the board of LSE and the management board of Deutsche Boerse confirm that they are in detailed discussions about a potential merger of equals of the two businesses," LSE said in a statement.

"The combination of LSE and Deutsche Boerse's complementary growth strategies, products, services and geographic footprint would be expected to deliver an enhanced ability to provide a full service offering to customers on a global basis."

Under the plan, Deutsche Boerse's shareholders would hold 54.4% of the new company, while LSE shareholders would hold the remaining 45.6%.

Both companies, which had previously attempted to merge in 2000 and in 2004, said all their main businesses would continue to operate under their current brand names.

"We believe regulatory and market structure changes will be the key drivers of European exchanges in the coming years," said analysts at UBS.

"On the positive side, the push to centrally clear OTC derivatives and bring standardized contracts on-exchange, and the establishment of a pan-Euro Target2-Securities (T2S) settlement platform should benefit the London Stock Exchange and Deutsche Boerse."

However, the investment bank cast doubts over the deal, hinting it might not receive the green light from European regulators as it could threaten competition.

"This [the merger] is unlikely to be approved by the EU Competition Commission unless the merged entity spins off a couple of businesses to reduce market dominance. Strategically, a deal would make sense for both and would give LSE access to custodian services where DB1 is very strong."

Shares in LSE were up over 19% as of 2.07pm on 23 February.

"Shares in London Stock Exchange Group have soared by over 14% in the past hour as news that they're in talks with Deutsche Boerse have been confirmed," said XTB.com analyst David Cheetham.

"If the deal were to go ahead it would create a clear market leader for European and one of the largest exchanges in the world for trading and risk managing derivatives.

"The timing of this development appears coincidental as the possibility of a Brexit has become increased in recent days now that a referendum date has been set and Boris has joined the Out campaign."