(Bloomberg) — Intercontinental Exchange Inc. has decided it would keep London Stock Exchange Group Plcs namesake equity market if it successfully buys the parent company, according to people familiar with the matter, a reversal of strategy from the last time ICE purchased a European stock exchange.
Though its corporate name implies otherwise, London Stock Exchange Group runs a constellation of businesses that go far beyond trading stocks. The jewels of the operation are probably a majority stake in LCH.Clearnet Groups swaps clearinghouse and the FTSE Russell index compiler. By retaining the London Stock Exchange, Atlanta-based ICE would own two iconic equity platforms with roots going back centuries — the other being the New York Stock Exchange.
ICE views the LSE as a valuable global brand alongside the NYSE. Retaining it could help emphasize to U.K. regulators tasked with approving any deal that it views London as central to its business, according to the people, who asked not to be identified because talks are private.
Markets like the LSE and NYSE are perceived as emblems of a nations economic prowess. Companies have a duty to find the best deal for their shareholders, but regulators sometimes let national interests influence their approval of takeovers. Even though competition has made them less lucrative, stock exchanges are important to their home economies because companies rely on them to raise capital.
Thats why perception, even before a formal offer is presented, matters.
ICE is waiting for a deal between Frankfurt-based Deutsche Boerse AGand LSE to emerge before potentially making its own higher offer, said the people familiar with the discussions. The German and U.K. exchange companies may announce a deal as soon as next week, the people said.
Officials for ICE, Deutsche Boerse and LSE declined to comment.
Capital markets, which include equity trading on the London Stock Exchange, accounted for less than a quarter of the parent companys income last year. LCH and FTSE Russell are viewed by analysts asfaster growing businesses. But stock exchanges carry iconic value that can outstrip their tangible financial worth.
Take the Chicago Stock Exchange, for instance. Its practically an afterthought in the U.S. equity market, amounting to about 0.5 percent of the nations trading. However, news that a Chinese-led group agreed to buy it provoked uproar a few weeks ago, with politicians calling for a national-security review of the deal.
ICE bought NYSE Euronext in November 2013. By the middle of 2014, it had spun off Euronext NV, which operates stock markets in Paris and Amsterdam. The companys primary aim was to acquire a European derivatives business called Liffe.
As for Deutsche Boerse and LSE Groups friendly merger talks, theyve already said the holding company for the $28 billion tie-up would be based in London. Key businesses would still operate under their existing brand names, with headquarters in Frankfurt and London. Theyve described the potential combination as a merger of equals, even though LSE Group equity holders would own 45.6 percent of the enlarged group, and Deutsche Boerse stockholders would get the rest.
While the companies initially indicated that LSEG Chairman Donald Brydon would have the same role in a merged exchange operator, that title would transfer to Deutsche Boerse Chairman Joachim Faber in three years, according to a person familiar with the discussions. LSEG CEO Xavier Rolet would step away, and Deutsche Boerse Chief Carsten Kengeter would take the top role.
