Deutsche Boerse-LSE eye savings from merger move: sources

FRANKFURT (Reuters) - Deutsche Boerse DB1Gn.DE and the London Stock Exchange LSE.L are targeting cost savings of more than 300 million euros ($331 million), once a merger of the two exchanges is completed, three people familiar with the matter said on Tuesday.

The plaque of the Deutsche Boerse AG is pictured at the entrance of the Frankfurt stock exchange February 1, 2012. REUTERS/Alex Domanski

Deutsche Boerse and LSE are expected to officially announce a merger agreement next week, well ahead of a March 22 deadline, two of the sources said.

The two companies are examining three types of advantages to bolster the case for a merger: revenue enhancements, lower prices for customers and cost savings from combining operations.

The last of the three - internal cost reductions - are the easiest to quantify and important to persuade shareholders to accept a merger offer rather than consider a potential alternative tie-up of LSE with U.S.-based ICE ICE.N.

“Cost synergies will clearly exceed the 300 million euros targeted in the Deutsche Boerse - NYSE merger in 2011,” one of the sources said, adding that Deutsche Boerse’s and LSE’s businesses are much more complementary.

That chimes with the view of Credit Suisse analysts, who estimated pre-tax cost savings at 360 million euros in 2017, or 15 percent of the companies’ combined cost base.

The sources said the cost savings - mainly in back office and IT - would take several years to come fully into play.

“In the beginning, the companies will continue to run all platforms and only over time shift business to the better platform or the better technology,” one of the sources said.

Deutsche Boerse and LSE declined to comment.

Other savings are harder to quantify now but are important in demonstrating the advantages of a merger.

The merged company would have access to larger pools of data that could be used to develop new index products, boosting revenue, one of the sources said.

Banks and other investors would also gain from a merger because of lower collateral and derivative clearing costs.

“Market participants, including banks, would experience considerable cost savings,” Deutsche Boerse Chief Executive Carsten Kengeter told a conference last week.

More efficient trading infrastructure at the merged company might allow it to pass on cost reductions to customers as well, saving them a mid single-digit billion euro amount, one person familiar with the merger plans said.

The Financial Times said on Tuesday banks and investors would be promised up to $7 billion in efficiency savings on trading by the two exchanges, as they seek to drum up support for a deal.

LSE said last week a merger with Deutsche Boerse would be “compelling” as potential rival bidders line-up for the British company.

Additional reporting by Jonathan Gould and Vidya L Nathan; Editing by Susan Thomas