Frankfurt Fears LSE Takeover
January 28, 2005
When Deutsche Börse chief Werner Seifert unveiled the latest details of the German stock market's plans to buy the venerable LSE on Thursday, he insisted that a tie-up was not about national egos.
"It's not about Frankfurt versus London. Both sides will benefit," Seifert repeated a number of times during a news conference.
And on paper at least, things look as if they would remain very much the same both on the Thames and on the river Main in Frankfurt. Both exchanges would continue to be overseen by the regulatory authorities of their corresponding countries and trading would continue to be carried out in the euro in Frankfurt and sterling in London.
London would have equal say in the running of the company, with Deutsche Börse promising that seven of the 14 shareholder representatives on the supervisory board would have "close ties to the City of London".
At the same time, Deutsche Börse promised to retain its global headquarters in Frankfurt (photo). And asked where he would have his main office, Seifert insisted it would be Frankfurt, even if he immediately added: "I'm always travelling anyway."
"Reverse takeover"
But despite such promises, the term "reverse takeover" quickly did the rounds, with concerns that while the Deutsche Börse would be footing the bill, it would be London that would finally be in command.
Deutsche Börse offered to base the combined cash equities, derivatives and clearing businesses in London, and LSE chief Clara Furse would be offered the job of being in charge of cash equities. And since the reputation of the City is more powerful than Frankfurt anyway, many of the big banks are now considered likely to move to London.
"Let's not kid ourselves. A shift would represent a noticeable weakening of Germany and Frankfurt as a financial centre," said the head of Deka Bank, Axel Weber.
And Erlangen university professor and stock market expert Wolfgang Gerke remarked that following the spectacular failure of the ambitious "iX" merger between Deutsche Börse and the LSE in 2000, "the Germans are bending over backwards" this time round to woo London.
"From a German point of view, there's reason to be nervous," Gerke said.
Redundancies and re-location?
Seifert promised on Thursday that there were would be no job cuts in London if the merger went ahead. But he did not repeat an earlier pledge that there would be no compulsory redundancies in Frankfurt and no German employees would be forced to move to London against their will.
"The issue was clearly not important enough for him to repeat this time round," the mass-circulation daily Bild complained in its Friday edition.
Herbert Walter, an official of the giant services sector labor union Verdi and a member of Deutsche Börse's supervisory board, said he believed Seifert would honor his pledge for no compulsory redundancies.
"But the issue more about Frankfurt as a financial center rather than just Deutsche Börse as a company," Walter said. "It is to be feared that all the big banks and consultancy firms will move to London. Frankfurt would lose out in know-how and in importance."
The trend to London
Winfried Hartmann, head of the investment fund Frankfurt-Trust, noted that Frankfurt had already lost out to London in the area of investment banking in recent years. And that trend would continue in the event of a merger.
Nevertheless, Deutsche Börse had no option but to win the battle for the LSE, Professor Gerke said. If rival bidder Euronext were to win, "that would also be bad for Frankfurt," he commented.
Other observers agreed. The daily Frankfurter Allgemeine Zeitung wrote in its leader column Friday that the LSE (photo) "is not just a trophy, it's the kingmaker among European stock markets. Whoever takes over Europe's leading stock market will no longer need to be constantly looking over its shoulder. The merged company will be a company under whose roof other exchanges will seek refuge, including the possible loser in this battle." AFP (jp)