German authorities raided Deutsche Boerse Chief Executive Officer Carsten Kengeter’s home and office as they investigate his purchase of company stock just months before the exchange announced talks to acquire London Stock Exchange Group.
Frankfurt prosecutors are looking into Kengeter’s purchase of the German exchanges shares on Dec. 14, 2015, according to a statement from the market operator. It emerged on Feb. 23, 2016, that takeover discussions with LSE were under way.
Deutsche Boerse’s shares rallied 6.7 per cent between those two dates.
The insider trading investigation is unlikely to derail Deutsche Boerse’s acquisition of LSE, according to Ian Davey, head of Scorpeo Analytics, a corporate-event advisory firm in London. He noted that the German firm’s supervisory board approved the purchase.
“It would be somewhat extraordinary for such a stock purchase not to have been thoroughly vetted prior,” Davey said. “In my view, this has a very low probability of preventing the deal closing.”
Frankfurt prosecutors confirmed the probe and raids in a statement on Thursday morning. The investigation was opened because of talks about a possible merger starting in July or August 2015 between the leadership of Deutsche Boerse and LSE, the investigators said.
Deutsche Boerse shares declined 1.3 per cent in Frankfurt trading, falling further after Landesbank Baden-Wuerttemberg cut the stock’s rating to hold from buy.
LSE “welcomes the strong statement of support” from Deutsche Boerse Chairman Joachim Faber, “who has described the allegations related to Carsten Kengeter as without foundation,” LSE said in an e-mailed statement. “We look forward to working towards completion of our proposed merger.”
The probe alleges that Kengeter bought Deutsche Boerse shares in December while knowing about the talks that at that time weren’t public, prosecutors said. Kengeter’s office in Eschborn and his Frankfurt home were searched Wednesday, according to the statement. Investigators are seeking to understand how the negotiations proceeded until Feb. 23, 2016, when the companies disclosed that talks had been held in an ad-hoc release following market rumors that had emerged.
The transaction was part of a compensation program that was approved by the company’s supervisory board, Deutsche Boerse said on Wednesday, adding that the company and Kengeter “fully cooperate with the public prosecutor.”
The probe comes as Deutsche Boerse and LSE are in a decisive phase in their effort to create Europe’s dominant exchange operator, a feat that has eluded previous chief executives. European Union competition watchdogs, who blocked a similar merger attempt in 2012, are likely to make a decision on the deal next month. The approximately $12bn takeover has also faced opposition in Germany over a plan to locate the headquarters of the combined company in London.
"This probe is clearly unhelpful, however it’s still too early to predict the outcome of something so personal,” said Arjun Bowry, a Bloomberg Intelligence analyst. “LSE and Deutsche Boerse still have sizable antitrust hurdles to overcome and those remain the key risk to the deal."
The exact date that discussions began between Kengeter and LSE CEO Xavier Rolet hasn’t been officially disclosed. Rolet said in a Telegraph interview last year that his counterpart reached out to him after becoming the German exchange’s chief in June 2015, but formal discussions began later. The companies entered into a confidentiality agreement that was dated Jan. 19, 2016, according to a March prospectus.
The supervisory board in 2015 granted Kengeter a one-time opportunity to purchase up to €4.5m ($4.9m) worth of shares that he’ll have to hold through 2019, according to the company’s annual report. In exchange for doing so, he’ll receive an extra award of 68,987 performance-linked shares that’ll pay out in increments between 2019 and 2021 if the company meets certain goals.
Kengeter bought 60,000 shares for €4.5m on Dec. 14, 2015, under the plan, data compiled by Bloomberg show.
Bloomberg
