Some Deutsche Boerse investors seek better LSE merger terms post Brexit

By Andreas Kröner and Jonathan Gould

FRANKFURT, June 27 (Reuters) - Some Deutsche Boerse shareholders are urging the exchanges group to seek more favourable terms in its planned merger with the London Stock Exchange Group (LSE) after Britain's vote last week to leave the European Union.

The two companies spelled out details of their agreement earlier this year, which would give Deutsche Boerse (LSE: 0H3T.L - news) shareholders 54 percent of the combined company. They have said the provisions cannot be altered and a decision by Britain to quit the EU would not alter the logic of the deal.

However, one top 20 investor in Deutsche Boerse told Reuters the ownership ratio must be revised following a sharp fall in sterling and the 15 percent drop in the LSE's share price since the "Brexit" vote.

"Otherwise the deal is not advantageous for Deutsche Boerse shareholders," a portfolio manager at the investor said.

Some shareholders also said German regulators might not accept the companies' plan to make London the legal base for the combined group in the light of the British referendum result.

"Deutsche Boerse's leadership must take another critical look at the merger plan up to now and either make massive adjustments or bury it altogether," said Klaus Nieding, an executive at Germany's DSW association of small shareholders.

The market watchdog in the German state of Hesse, where Deutsche Boerse is headquartered, can block mergers that threaten the development of the Frankfurt exchange and may do so unless the city gets more favourable terms, he said.

Deutsche Boerse and the Hesse watchdog declined to comment. An LSE spokesman reiterated the merger terms remained the same.

LSE shareholders are due to vote on the deal at a meeting on July 4, while Deutsche Boerse shareholders can tender their shares until July 12.

Like many large shareholders, the top 20 investor owns shares in both Deutsche Boerse and the LSE. While he said he planned to vote his LSE shares in favour of the merger, he had not decided whether to tender his Deutsche Boerse stake.

"Strategically, the merger still makes sense from our point of view but we are hoping for better terms that will allow us to back the deal without pain," he said.

A special committee created by the exchanges to deal with the referendum will meet in the coming weeks to discuss the implications, including for the merged company's base.

"The choice of London as the sole headquarters of the holding ... would have to be reviewed," Deutsche Boerse's chairman Joachim Faber told a newspaper earlier this year.

Sources close to the deal expect LSE shareholders to approve the merger and say Deutsche Boerse also has a good chance of reaching its target 75 percent shareholder acceptance threshold.

German and EU regulatory approval, which the exchanges hope to gain to close the deal early in 2017, is seen as a major hurdle, though, particularly in light of the British vote.

Bankhaus Lampe analyst Neil Smith said he put the chances of the merger succeeding at just 20 percent. (Additional reporting by Huw Jones; Editing by Mark Potter)