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Amid rising criticism, Germans weigh London stock exchange merger |
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May 24, 2000
FRANKFURT, MAY 23 (AP) - The proposed merger of the Frankfurt and London stock exchanges, intended to create a European counterweight to Wall Street, could unravel because of squabbling over who's getting the better end of the deal.
With critics on both sides of the English Channel calling the merger a sellout, an official at the Frankfurt-based stock exchange said he would rather postpone Tuesday's vote by Deutsche Boerse's supervisory board on the merger than have the plan rejected.
"It would be a complete disaster if the merger were to fall apart," Klaus Patig, vice chairman of Deutsche Boerse's supervisory board, said Monday. "I would be in favor of a 'consideration period' if there's no decision" at today's meeting.
The proposal faces its first hurdle Tuesday, when Deutsche Boerse's supervisory board meets in the afternoon to vote on the plan unveiled earlier this month for a 50-50 market to be called iX, for International Exchanges.
A press conference was scheduled for later in the evening to announce the meeting's outcome.
Deutsche Boerse board member Frits Nols was optimistic the planned tie-up would overcome mounting opposition. "Basically, there's no other way to suit the needs of the leading international investors," he said, adding that the board has already given a general go-ahead.
The deal makes sense for Germany, he said, because without it, Frankfurt "would decline to the status of a provincial bourse."
Werner Seifert, chief executive of Deutsche Boerse who will be chief executive officer of iX, still stands solidly behind the merger. He has consistently said iX will slash transaction costs for investors because the enlarged bourse will have a bigger pool of buyers and sellers and increased economies of scale.
Other officials at the exchange remained upbeat Monday that the Germans would still seal the deal.
"We're very optimistic indeed," Deutsche Boerse spokesman Frank Hartmann said. "This is the logical next step in the consolidation of the European stock market."
Despite the hype, problems cropped last week when some Deutsche Boerse board members and the exchange's regulator said the merger plans would threaten Frankfurt's long-term future as an international financial center.
The regulator, Economics Minister Dieter Posch in Hesse state where Frankfurt is located, said he would not sign off of the deal until certain details were clarified. Those include which German companies would be listed in London, whether London trading would be more expensive for German investors and whether Frankfurt could be the guaranteed the role of trading high-growth stocks into the future.
Under the Anglo-German merger agreement, shares in blue chip companies would be traded in London, while shares in high-tech firms would be traded in Frankfurt. The iX headquarters are to be in London.
German bankers also fear the merger's plans to include the U.S.-based Nasdaq stock market will eventually tilt the scales in favor of moving high-tech stocks to London.
"All the facts point to London," said Horst Zirener, a spokesman for the German Association for Investment Firms, whose group issued a warning about the merger Monday. "The fears are that we will have to surrender that sector to London on cost grounds."
Last Friday, Hans Reckers, the head of the state central bank in Hesse, also chimed in, calling for the high-tech venture to be managed and based in the German city.
Meanwhile in Britain, investors complain the Germans will get all the hot, new growth stocks, with some calling the deal an outright German takeover.
British small-time brokers - who just recently shelled out cash to convert their computers to a newer London system - are also upset over the fact that they will have to change platforms again. Under the deal, the two exchanges would adopt Frankfurt's Xetra trading technology.
British regulators have also expressed concerns that centering big German companies in London will pressure the London Stock Exchange to eventually list companies in euros, rather than pounds. Britain is the most outspoken European Union holdout that has rejected using the single currency adopted by Germany and 10 other nations in the 15-member bloc.
If the German supervisory board gives the merger the nod, shareholders must still sign off on the deal. Both exchanges need approval from 75 percent of the shareholders; neither side has yet scheduled a vote.
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