The proposed tie-up between the London Stock Exchange (LSE) and Deutsche Börse, which is set to create a £21 billion pan-European trading giant, is likely to lead to 1,250 job cuts or around 14 percent of their combined workforce and is part of a €450 million cost savings initiative.
We believe that this merger allows the shareholder long-term growth through diversified and resilient revenue streams.
The potential cost savings are the key factor in gaining support for the merger which LSE shareholders are due to vote on 4 July and Deutsche Börse investors by 12 July.
These dates mean that shareholders will cast their votes after the June 23 UK referendum on whether to leave the European Union. Although this is unlikely to affect the outcome, it is widely believed that a vote in favour of leaving the EU would damage the prospects of an LSE-Deutsche Börse merger.
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The heavy job losses may create concerns for the two companies as they set about securing the backing of governments and regulators for the champion for European trading, which would create a more powerful rival to leading US and Chinese groups in what is already a heavily consolidated industry.
Carsten Kengeter, chief executive of Frankfurt-based Deutsche Börse, commented: “The strategic rationale for this merger is very clear. We firmly believe that this merger allows the shareholder substantial long-term growth through diversified and resilient revenue streams.”
Hans-Walter Peters, head of Germany’s banking association, said that the merger was “a chance for Europe”, but insisted that it was important that business was divided fairly between London and Frankfurt. He added that the merger would be endangered if Britain votes to leave the EU later this month.
Due to overlapping technology, exchange combinations can often create large savings by removing duplicate systems and reducing IT spending. To pay for these savings and employee buyouts, the companies said that they would book a one-time cost of €600 million. The LSE employs around 3,500 people and Deutsche Börse around 5,200. The lay-offs would be phased in over a three-year period after the deal ends.
Both companies also said that they hoped to achieve as much as €160 million in new revenue opportunities from cross-selling and creating products over that same period which could result in the creation of 200 new jobs, while other operational changes may lead to 350 new jobs created. The companies forecast that a further one-time cost of €100 million would be needed for this.