Deutsche Börse AG And London Stock Exchange Group Plc Agree To Industry-Defining Merger

Xavier Rolet, Chief Executive Officer of LSEG, said: “We are creating an industry-defining combination which will be a leading global market infrastructure business, very well positioned to create new benefits and efficiencies for our customers and increase value for our shareholders. Our highly complementary businesses will accelerate growth. Our shareholders will also benefit from substantial cost and revenue synergies. The Combined Group will continue to be fully committed to the real economy, by supporting companies, including the 23 million SMEs across Europe that drive economic growth and job creation. We will create a European leader in global markets infrastructure.”

Addressing changing global customer needs in an evolving regulatory landscape

The Combined Group will be a compelling partner for sell-side customers, helping to manage their costs and capital and regulatory requirements. It will be well-positioned to meet non-discriminatory open access provisions, across all relevant businesses, in forthcoming European regulation (MiFID II / MiFIR), as well as to respond to rapidly changing fixed income markets trading requirements across dealers and clients with risk management at its heart. Issuers will be provided access to a larger liquidity pool and investor base, creating an ecosystem for financing companies at all stages of their development, and helping to make the vision of the Capital Markets Union in Europe a reality. The Buy-side will benefit from global indexing solutions and continued product innovation through FTSE Russell and STOXX. This will help to meet the needs of customers for a global offering across capital markets through the strength of a diversified European platform with a strong presence in the US and Asia, including China.

Creating a leading venue for capital formation and facilitating economic growth

The Combined Group will provide a platform for financing and promoting economic growth of European companies and will be an attractive offering to Asian and US companies looking to access investors and capital. In addition, by connecting Frankfurt, London and Milan secondary cash markets, a liquidity bridge will be established, providing customers with access to more securities, a broader range of services and a combined offering for pre-IPO markets, utilising LSEG’s and DBAG’s expertise in this area.

The Combined Group will support SME’s through building on, for example, AIM (the world’s largest market for growth companies), ORB (an order-driven trading service for retail bonds), as well as SME support programmes such as Deutsche Börse Venture Network and LSEG’s ELITE and publications such as “1000 Companies to Inspire Britain.”

Furthermore, in fixed income markets, government and corporate issuers will benefit from the combination of MTS, MOT, ORB and Eurex Bonds, offering systemically important financing services to banks through their repo offerings with links to clearing and settlement.

Combination between Frankfurt and London, enhancing both financial centres domestically and internationally

The Combined Group brings together London, a leading global financial centre and Frankfurt, the home of the ECB and access point to Europe’s largest economy, in an industry-defining combination. Both cities are important trade centres for Europe and the global economy, and the Boards are committed to maintaining their respective strengths and capabilities. The Merger enhances the established link between financial services and the real economy, extends services and benefits for customers and contributes to the financial stability of the European market, a key aspect of the European Capital Markets Union. The Merger will reinforce both cities’ roles:

• Frankfurt is the home of the ECB and remains the access point into Europe’s largest economy with strong expertise in listed derivatives, technology, post- trade and risk and balance sheet management with Eurex Clearing and Clearstream. German corporates and investors will benefit from the liquidity bridge connecting London, Frankfurt and Milan secondary cash markets. Frankfurt will remain the ‘City of the DAX’, with the Combined Group providing better opportunities and services for German corporates to raise new capital through the Combined Group’s larger liquidity pool and investor base.
• London, which will be the domicile of the Combined Group’s UK TopCo, will further strengthen its position as a leading global financial centre, and the most international listing venue, a leader in OTC clearing and risk management (through LCH.Clearnet), post-trade, technology, global indexes, and primary and secondary markets. The Combined Group will benefit from London’s geopolitical role as a link to Asia and the United States, as well as its outstanding international talent pool and broad cluster of supporting professional services in London.

Delivering a platform of choice for risk and balance sheet management, increasing safety, resilience and transparency in global markets

 The Combined Group will offer an enhanced proposition to customers for their hedging, risk and balance sheet management and capital and collateral management needs through the provision of a leading global derivatives trading and clearing franchise; and a global custody, settlement assets servicing and collateral management service. The Combined Group and its clients will also benefit from the ownership of leading global multi-asset class CCP clearing houses. With margin pools (in aggregate) of approximately €150 billion across LCH.Clearnet and Eurex Clearing, the Deutsche Börse management board and the LSEG board believe the Combined Group will continue to contribute to the safety, resiliency and transparency of global financial markets.

LCH.Clearnet Group will continue to be committed to a horizontal, open access clearing model. The Combined Group will meet non-discriminatory open access provisions, across all relevant businesses, in forthcoming European regulation (MiFID II / MiFIR).

The planned development of a portfolio margining service between OTC and listed rate derivative clearing markets will provide significant customer benefits through margin relief and cost of capital savings, allowing capital to flow back into the real economy. The service will be subject to full regulatory approvals, adhering to all current EU regulations including EMIR.

Through Clearstream, Monte Titoli and globeSettle, the Combined Group is well positioned to attract assets and issuers in a T2S world. In addition, Eurex’s offering will be significantly enhanced through further integration and connectivity with UK markets and FTSE Russell index innovation capabilities.

Creating a leading information services business, providing innovative benchmarking, index data products

Through FTSE Russell and STOXX, the Combined Group will be well positioned to respond to growth trends in the asset management industry, including the shift to passive investing and demand for innovative benchmarking tools, such as factor indexes and fixed income indexes. A strong suite of products will be available to meet client needs, for example for regulatory reporting and post-trade processing through UnaVista and Regis-TR. The Combined Group will be an attractive partner for asset managers and banks as they seek innovative new investment and trading strategies.

Delivering significant value creation through cost synergies of €450 million per annum, achieved in year three post completion, and significant opportunity for revenue synergies

The cost synergies of €450 million per annum are additional to any savings already planned by DBAG and LSEG and are expected to be realized through technology enabled efficiencies by removing duplication in the corporate centre and business segment optimisation.

Significant opportunities for revenue synergies driven by the ability of the Combined Group to offer both existing and new innovative products through an expanded global distribution network to both new and existing customers across the buy- and sell-side.

Balanced and efficient governance of the Combined Group

The newly formed holding company has been incorporated in the UK (UK TopCo) and has a unitary board with equal representation from LSEG and DBAG, constituted in accordance with the UK Corporate Governance Code. The Combined Group will maintain its headquarters in London and Frankfurt. LSEG will maintain a one-tier-board system, while Deutsche Börse will maintain a two-tier-board system subject to applicable co-determination rules. The existing regulatory framework of all regulated entities within the Combined Group would remain unchanged, subject to customary and final regulatory approvals.

Initially following the completion of the Merger, the UK TopCo Board will comprise 16 directors with LSEG and Deutsche Börse nominating 7 non-executive directors each (including the Chairman and the Deputy Chairman and Senior Independent Director, who are named below). It is expected that the UK TopCo Board will subsequently be reduced to 14 directors as a non-executive director nominated by each of LSEG and Deutsche Börse will stand down. The initial composition of the UK TopCo Board is as follows:

• Donald Brydon will become Chairman
• Joachim Faber will become Deputy Chairman and Senior Independent Director
• Carsten Kengeter will become Chief Executive
• David Warren will become CFO; and
• Six further non-executive directors nominated by LSEG and six further non- executive directors nominated by Deutsche Börse

UK TopCo is a public limited company incorporated in the UK. Deutsche Börse in Frankfurt and LSEG in London will become intermediate subsidiaries of UK TopCo. UK TopCo will use the euro as its reporting currency for the purposes of its accounts and other financial reports following completion. The subsidiaries of UK TopCo will continue to use their existing reporting currencies for the purposes of their accounts and other financial reports. In addition UK TopCo will be resident solely in the UK for tax purposes. LSEG and Deutsche Börse will continue to be subject to tax in their respective countries of incorporation. UK TopCo will seek a premium listing for its shares on the London Stock Exchange and a prime standard listing for its shares on the Frankfurt Stock Exchange. It is envisaged that the UK TopCo shares will be eligible for inclusion in the EuroSTOXX DAX and FTSE Russell index series.

On completion, Xavier Rolet will step down from his role as Chief Executive Officer of LSEG. On stepping down as CEO, Xavier Rolet will become an adviser to the Chairman and Deputy Chairman to assist with a successful transition. It is presently envisaged that this arrangement would last for up to one year.

Ownership structure of the new formed company

Following completion of the Merger, assuming 100 per cent acceptance of the Deutsche Börse Offer, 54.4 per cent of UK TopCo will be owned by Deutsche Börse shareholders and 45.6 per cent will be owned by LSEG shareholders on a fully diluted basis.

The Merger will be conditional upon, amongst other things: (i) acceptances being received in respect of the Deutsche Börse Offer in respect of at least 75 per cent of the Deutsche Börse shares (less treasury shares held at the beginning of the acceptance period); and (ii) the requisite approvals of the LSEG shareholders for the Scheme and the Merger .

Each shareholder of LSEG will be entitled to receive 0.4421 shares of the UK TopCo stock in exchange for each LSEG share. On the Deutsche Börse side, the UK TopCo will launch a public exchange offer, in which shareholders of Deutsche Börse will be entitled to receive one share of the UK TopCo in exchange for each Deutsche Börse share.