Good morning, ladies and gentlemen, and welcome to the joint analyst and investor conference call of Deutsche Borse and London Stock Exchange Group. My name is Sandra Schroatze, and I will be your operator today. At this time, all participants are in a listen only mode. At the end of the call, you will have the option to ask questions. We ask that callers limit their questions to 1 I will now be connecting you to the conference for introductions by Jan Strecker, Head of Investor Relations of Deutsche Borse.
Good morning, everyone. Before I introduce our speakers today, let me remind you that this presentation includes forward looking statements about Deutsche Borse AG, London Stock Exchange Group, the enlarged group and other persons, which may include statements about the proposed business combination, the likelihood that such transaction could be completed, the effects of any transaction on the business of Deutsche Borse AG or London Stock Exchange Group and other statements that are not historical facts. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward looking statements are not guarantees of future performance and actual results of operation. Financial condition and liquidity and the development of the industries in which Deutsche Borse AG and London Stock Exchange Group operate may differ materially from those made in or suggested by the forward looking statements contained in this document.
Any forward looking statements speak only as of the date of this document. Except as required by applicable law, none of Deutsche Borse AG, London Stock Exchange Group, undertakes any obligation to update or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise. Please note that the Enlarged Group shares will not be registered under the U. S. Securities Act or otherwise in the United States, and we are not making any public offer of shares in the U.
S. The enlarged group shares may not be offered or sold in the U. S. Without an exemption from U. S.
Registration requirements. For the conference today, Carsten Cangheta, Chief Executive of Deutsche Borse Xavier Rollais, Chief Executive and David Warren, Chief Financial Officer of London Stock Exchange Group, will walk you through the key components of this compelling strategic combination. Carsten, Xavier and David will be referring to the slides during their presentation, which are available on our respective websites. We will then be happy to take any questions you may have. With that, let me turn the call over to Carsten Gengetter, Chief Executive of Deutsche Borse.
Good morning, ladies and gentlemen. Xavier and I are pleased today to jointly present our plan for a merger of equals between Deutsche Borse and London Stock Exchange Group. Let me turn over to Xavier to make some introductory remarks.
Yes. Thank you very much, Carsten. I'm indeed very pleased to be talking to you with Carsten today on this joint conference call. I know that I speak for both of us when I say that we are really pleased to be finally able to talk to you today to give you the facts to judge the proposed merger on its merits, rather than relying on the rumors and speculation that have dominated the headlines over the past few weeks. Please also note that we will provide further information about the terms of the merger in the scheme of arrangement documents to London Stock Exchange Group shareholders as well as in the offer documents to Deutsche Borse AG shareholders in due course.
Before we look at the slides, I have one very simple message to deliver to you and that is that I am 100% supportive of this merger. I firmly believe that it is the right deal for shareholders, customers and employees of both LSEG and Deutsche Borse. Both companies will grow as a result. Both London and Frankfurt will prosper as international financial centers. And the UK, Germany and Europe as a whole will benefit.
I also believe it is absolutely the right time to take this transformative step in our histories. Market infrastructure industry is in a period of transformative change. In the last 7 years that I've had the absolute honor and privilege to serve as Chief Executive Officer of London Stock Exchange Group, we have gone from a domestic equity exchange to a truly globally diversified market infrastructure business with 3 core pillars: capital formation, intellectual property and risk and balance sheet management. Deutsche Borse has also been on a similar journey of change and growth. Both LSE Group and Deutsche Borse AG have proven that they have the ambition and drive to be global leaders.
We both already have global businesses in many areas, but together, our complementary businesses and footprint will enhance our global offering, making us globally even more competitive. This is a merger of equals between 2 highly complementary partners. The combined group will create a leading Europe based global market infrastructure group offering significant benefits for our customers and value for our shareholders. If you could turn with me over to Slide 5, the strategic rationale for this merger is very clear. We firmly believe that this merger will offer shareholders real long term growth with diversified and resilient revenue streams.
We both have a track record of delivering value to shareholders and together we will accelerate our growth plans and deliver enhanced value over the long term. Customers will also reap the benefits of a new diversified global business able to address their needs across the entire investment lifecycle. They will benefit from capital and operational efficiency, for example, by taking advantage of our innovative benchmarking tools or our planned portfolio margining service. The combined group will be the largest exchange group by total income with a diversified revenue mix by products and also by geography. You will hear more about the financial benefits of the transaction later from David Warren.
Turning to Slide I think you can see the compelling strategic logic of this merger at a single glance. Deutsche Borse and London Stock Exchange Group fit strategically and operationally. Both have strong brands, market expertise in both of the complementary products across the entire value chain and both have a broad geographic scope as well as market depth. In our view, no other combination of market infrastructure providers today offers such a good match in terms of improving each other's strength, enhancing each other's capabilities and accelerating each other's growth strategies. Let me give you a few examples.
Our combination will bring together Deutsche Borse's deep liquidity pools in EU benchmarks and Europe's largest capital markets. Both companies have strong clearing and risk and balance sheet management expertise in complementary asset classes and geographies. Both companies are exposed to high growth areas such as derivatives, indices and market data and both have leading technology capabilities forming the backbone of our respective operations. Carsten will talk in greater detail about the combined Deutsche Borse and LSEG businesses later in this presentation. From a shareholder perspective, we both have proven track records delivering strong returns.
Deutsche Borse delivered 37% TSR over the last 2 years, whilst we delivered 27%. Slide 7 demonstrates our combined global reach. We both have a substantial presence in Asia. Both companies have in fact engaged in China, an all important market for the future from Deutsche Borse's joint venture agreement with the China Foreign Exchange Trade System, CFPTS, to London Stock Exchange Group's UK Shanghai Stock Connect project and F. T.
Russell's presence in China benchmarks. In addition, Deutsche Borse has cooperation agreements with Korea and Taiwan, and LCH ClearNet has a clearing presence in a number of other Asian countries. We both also have significant presence in the all important U. S. Market.
LSEG acquired the Russell Index Business last year and clears the vast majority of U. S. Dollar denominated swaps. Together, we will maintain a customer partnership model with operations in over 30 countries. Turning quickly to Slide 8, which shows the substantial footprint of the group across Europe, not just in our own markets, which you would expect and take for granted and which Carsten will touch on later, but also in Italy, in France, Luxembourg and beyond.
Let me now hand back to Carsten, who will share his thoughts on the strategic rationale and take you through the combined business.
Thank you, Savien. We do share a strategic vision for this newly created combined group, which will deliver more than the sum of its parts to all our stakeholders, customers, shareholders, employees and others. Turning to Slide 9. This demonstrates this vision. Together, Deutsche Welser and London Stock Exchange Group will be the largest exchange group by total income.
Through its enhanced position in the global market infrastructure sector, the combined group will be well placed to adapt to industry and regulatory dynamics and able to compete globally. The combination enables Europe to maintain and enhance its capital markets infrastructure long term, invest in state of the art infrastructure and build global connectivity. Further, the stronger linkage between the largest European economies, I. E, the UK and Germany, will result in economic growth, better access to low cost capital for investments across Europe. Turning to Slide 10.
We will support the envisaged capital markets union and will ultimately play a significant role in making this vision a reality by creating an ecosystem for financing growth companies at all stages of development. This includes better access to capital markets for the real economy, including SMEs. And now to Slide 11. Frankfurt and London are important financial and trade centers for the global economy as well as for Europe, and both have strong links between financial services and the real economy. The combined group will contribute to financial stability.
Subject to customary and final regulatory approvals, both partners will retain their existing regulatory frameworks, and we will address changing customer needs in an evolving regulatory landscape. We believe all of the countries in our group will benefit from this transaction. But let's look at the benefits for London and Frankfurt in more detail on the following slides. This partnership can and will only thrive if both partners are committed to it. The partnership with Deutsche Borse and London Stock Exchange Group combines the unique strengths of the 2 leading European Financial Centers and reinforces their position globally.
Both locations must and will benefit greatly from this merger. I'm skipping Pages 1213 of the presentation and turn to Page 14. This merger will create significant value for a wide range of stakeholders. There will be a meaningful value creation driven by an enhanced growth profile,
strong
synergies and an attractive capital return policy. This is good for both of our shareholders. For our customers, they will benefit from deeper liquidity, more transparent markets and simplified global access to multiple products. For our issuers, we will be the global listings partner of choice with London, Frankfurt and Milan markets. By executing effectively on the above, there will be benefits to our employees and creditors.
Lastly and importantly, the regulatory framework will remain unchanged, subject to customary and final regulatory approvals, and the combined group will be a stronger, more diversified global clearing provider, bringing increased safety, resiliency and transparency to global markets. Now turning to Slide 16, the section on the strength of our combined businesses. As we've said, the combination also brings together a complementary set of products with global leading and well known brands across the investment cycle from capital markets to post trade and to supporting information services and technology business. This will ultimately result in an enhanced product offering for our customers. This slide showcases the complementarity of the London Stock Exchange Group and Deutsche Borse business sets and the strength and depth in products and skills across each business line.
Looking first at primary and secondary cash markets. Through the combination of a number of leading listing venues in London, Frankfurt and Milan, we're creating an ecosystem to facilitate financing of European and international businesses across all stages of their development. The combined group is a leader in fixed income markets, helping governments and corporate issuers through a combination of a number of venues, including MTS and Eurex Bonds. In derivatives trading and clearing, the combined group will have leading providers of exchange traded and OTC derivatives, bringing together the strength of both LCH ClearNet's OTC clearing platform and Eurex's listed derivatives franchise. Given the recent speculation, I'll state here again that the existing regulatory framework of all regulated entities within the combined group would remain unchanged subject to customary and final regulatory approvals.
In custody and settlement, combining Clearstream with Monte Titoli and Globesettle will allow the group to be well positioned to attract assets and issuers in a new T2S world. And finally, we will create a larger and more diversified Information Services and Technology division. Moving to Slide 17, please. You can see the combined group will offer our customers a truly multi asset class business across the entire product portfolio. The matrix on the right shows that the combined business will have leading positions across multiple asset classes with the ability to service global customers across the investment, risk and balance sheet management life cycles.
Slide 18. Both Deutsche Borse and LSEG are united by a fundamental belief in the role of capital markets to support not only blue chip companies, but also and importantly, the EU's 23,000,000 small and medium sized enterprises. Some of them are blue chip companies of tomorrow and therefore have a highly important role for future growth in Europe. By combining the various listing venues of the two groups across London, Frankfurt and Milan as well as a number of assets geared to support the SME sector, the combined group will create a leading venue for capital formation and play a vital role in facilitating economic growth in Europe. Slide 19.
The combination will bring together 4 leading global multi asset class CCP clearinghouses under 1 a historical step enhancing customer benefits as well as the safety and integrity of global markets. With margin pools in aggregate of approximately €150,000,000,000 across LTH ClearNet and Eurex Clearing, the Board believe the combined group would continue to promote the safety, resiliency and transparency of global financial markets. LTH Climate Group will continue to be committed to a horizontal open access clearing model, and the combined group will meet nondiscriminatory open access provisions across all relevant businesses in the forthcoming European Regulation MiFID II, MECIA. The combination of respective strengths of these organizations will lead to a number of benefits, including the reduction in complexity. Turning to Slide 20, please.
The merger brings together Clearstream with Monte Titoli and Globe Settle, further increasing customer access to settlement custody, asset servicing and collateral management. In a T2S world, we believe the combined group will be better positioned to attract assets and issuers as well as further building on its strong links to Asian markets. With over $16,000,000,000,000 of assets under custody and its collateral management capabilities, the combined group will significantly help to ease the burden of financing in the market and build on Clearstream's existing global liquidity hub. And now turning to Slide 21 to discuss the Index and Information Services business. Together, we will be better positioned to deliver to our customers the benefits of ongoing convergence between exchange, market infrastructure, data and information services companies.
2015 total income is around €1,000,000,000 with leading positions in indices, real time and reference data, trade repository and regulatory reporting and processing services. The division will benefit from a larger combined sales operation, driving continued strong growth. We are an attractive partner for asset managers and banks as they seek innovative new investment and trading strategies. Let's now focus on indices on Slide 22. The combination brings together leading globally recognized index brands such as FTSE Russell's stocks and DAX indices.
Together, we will be well positioned to respond to the structural growth trends in the asset management industry, including the shift to passive investment and demand for innovative benchmarking tools such as factor indices and fixed income indices. In Europe, ETF AUMs have been increasing with a growth rate of 24% per annum since 2,005 and offer a large market opportunity for the combined group. Furthermore, the index franchises are highly complementary. FTSE Russell has leading benchmarking expertise and Stock Stacks has a strong derivatives and tradable index franchise. These leading and globally recognized brands are well placed to support U.
S, European and Asian investors in the global investment decision making life cycle. I'd like to hand over now to David Warren, Chief Financial Officer of LSEG, to talk us through the financial highlights of the transaction.
Thank you, Carsten. I am delighted to outline the key financial benefits from this merger. Over the next five slides, I will highlight the attractive financial profile of the combined group and the value to be created for shareholders and customers. So please turn to Slide 24. The new group will have well diversified revenue streams delivering strong margins and the combination is expected to be accretive to both Deutsche Werze and London Stock Exchange Group adjusted cash earnings in the 1st full year.
We expect €450,000,000 in cost synergies per annum achieved in year 3 post completion and significant opportunity for revenue synergies. We will have a highly attractive cash generation profile providing us with capital for future investment and growth as well as attractive capital return. We intend to develop a progressive dividend policy within the range of current policies of both the London Stock Exchange Group and Deutsche Borse. Let me now give you a few more details starting on Slide 25. Total cost synergies of €450,000,000 per annum are equivalent to approximately 20% of the combined group's 2015 operating costs of approximately €2,200,000,000 These are in addition to any savings already planned by the LSEG and the Deutsche Borse.
Cost synergies are expected to come from 3 major areas: technology enabled efficiencies, removing duplication in the corporate center and business segment optimization. Within technology synergies, we anticipate savings from the removal of duplicated central IT functions, harmonizing trading and post trade platforms and reduction in project spending. Within the business segment and corporate center categories, we anticipate savings from integration of index businesses, scale efficiencies across asset classes and removal of duplication and support functions, governance as well as reduction in various external and professional fees. The full effect will be achieved by the 3rd year post completion with the estimated phasing shown on the slide. Both our organizations have a proven track record of delivery and we draw on the considerable resources, including IT skills, expertise and experience within our organizations to realize these benefits.
One time cost to achieve is anticipated to be around €600,000,000 Now please turn to Slide 26 on revenue synergies. We believe that through combining our broad and complementary customer bases, there will be opportunities to drive additional revenue growth. We haven't quantified these, but you can see the wide scope of opportunity by broad business area. I'll pick out a few examples. We can use the commercial expertise and distribution networks of the combined group's information services and index businesses to cross sell products and expand across reference data and regulatory reporting.
We can harness the benefits of the combined group's multiple CCP operations to further develop trading and clearing products in the fixed income, currency and commodity complex, including customer benefits arising from portfolio margining service. And we can enhance our offerings in equity and debt capital formation for listed and pre IPO companies and develop a liquidity bridge to facilitate cross border market access for all trading participants to create deeper pools of liquidity and increased trading opportunities. And furthermore, we plan to drive growth both East and West in Asia and in the U. S. Now if you could turn to Slide 27.
The combined group will generate revenues from well diversified product lines and geographies. Each company will benefit from further diversifying their respective revenue streams as Deutsche Borse increases its exposure to information services and the London Stock Exchange Group increases its exposure to derivatives and custody and settlement services. Revenue
volatility will
be reduced with a broadly equal split of transactional and non transaction revenues. So let me finish on Slide 28 with observations on our stronger capital position and the increased balance sheet flexibility. The combined group leverage is approximately 1.7 times based on 2015 financials, and we would expect this to reduce over time to 1 time. As well as a focus on leverage, the group will also have financial flexibility to pursue additional strategic initiatives and to finance future growth. Within a broad capital management framework, the strong balance sheet and free cash flow generation will allow the combined group to continue attractive distribution
policies.
The combined group intends to adopt a progressive dividend policy within the current policies of both the Deutsche Borse and the London Stock Exchange Group. So we believe that the combined group can deliver real and significant value creation for shareholders through accelerated growth and substantial cost efficiencies that drives both capital growth and income benefits. So let me now hand back over to Carsten.
Thank you, David. Turning to Slide 29. This provides a road map towards completion. We expect to close transaction by the end of 2016 or during Q1 2017. There'll be approvals needed, including those from shareholders and regulators, of course.
We look forward to seeking those approvals and the parties have opened communications with a number of regulators already and will open communications with the remaining regulators in due course. Turning to Slide 30. This is a summary of the key terms. We have structured the transaction in a well balanced manner based on the compelling strategic rationale and business logic. The top holding company will be a public limited company incorporated in the United Kingdom.
The combined group will maintain its headquarters in London and Frankfurt. The existing regulatory framework of all regulated entities within the combined group would remain unchanged subject to customary and final regulatory approvals. UK TopCo will use the euro as its reporting currency for the purposes of its accounts and other financial reports following completion. Following completion, LSEG and Deutsche Borse will continue to pay tax related to their profits in their respective countries of incorporation. Each business will benefit from the enhanced revenue synergies and better service offering, meaning that both Frankfurt and London will benefit from the potential business opportunities.
The transaction will be an all stock combination resulting in the current Deutsche Versa shareholders owning roughly 54% of the combined group and current London Stock Exchange Group shareholders owning roughly 46%. The governance structure is well balanced with an equal board with Donald Brieden as Chairman and Joachim Saba as Deputy Chairman and Senior Independent Director. There will be continuity of management with myself as CEO and David Warren as Chief Financial Officer. Xavier Rollais will step down from the CEO position after completing the transaction, but has kindly agreed to provide strategic support during the critical integration phase of this combination. We will name other management roles in due course using a best in class approach.
The new holding company will seek a premium listing on the London Stock Exchange and the prime standard listing on the Frankfurt Stock Exchange. It is envisioned that UK TopCo shares will be eligible for inclusion in the Eurostox, DAX and FTSE Russell Index series. I would like to sum up this truly transformational transaction in a few words. The combination will form a Europe based global market infrastructure provider and leader with significant benefits and value creation for our shareholders, customers, employees and regulators by combining our strengths. We strongly believe this is the right transaction at the right time for our 2 companies for the U.
K. And Germany and for the broader European marketplace. Deutsche Borse and London Stock Exchange Group are a very good fit indeed. Together, we will accelerate our growth plans and deliver enhanced value over the long term. Both boards, Chairman, CEOs and management teams firmly believe this is an industry defining, value enhancing merger of equals that will result in more than the sum of its parts.
We're committed to proving this to our customers, shareholders and other stakeholders in the days, weeks months ahead. I'd like to turn back to Xavier, please.
Thank you, Carsten. I'd certainly like to echo my comments at the start. I am 100% convinced that this merger is the right deal for shareholders, customers and employees of both LSC Group and Deutsche Bank. Both companies will strengthen and grow as a result. Both London and Frankfurt will prosper as financial centers and the UK, Germany and Europe as a whole will benefit.
I also believe it is absolutely the right time to take this transformative step forward in our history. Finally, on a more personal note, I would also like to add that I fully back the proposed management team of Carsten and David. David has been a valued colleague and a friend to me in his journey here at the London Stock Exchange Group. Carsten has known for well over 20 years from our days at Goldman Sachs. We, all three of us, speak the same language, the language of customers and the language of international finance.
And I know that with our very experienced and capable combined management team, the company will be in the best hands for the next step in its history as it takes its rightful place as the leading global infrastructure company. They are together a most powerful combination and I know that they will deliver. We would now be very happy to take your questions. The 3 of us are also joined by Gregor Ott Mayer, CFO of Deutsche Borse Donald Breiden, Chairman of LSCG and Joachim Faber, Chairman of Deutsche Borse AG. I will turn it back to Carsten, who will chair the Q and A.
Thank you for your attention.
Thank you. Operator, we can have the first question, please.
Thank you very much. You. The first question comes from Daniel Garrett from Barclays.
Yes, good morning. Daniel Garrett from Barclays. Good morning, Carsten Xavier. I had one quick question around the benefits to the customers. There's a lot of reference to in the press releases this morning to the collateral efficiencies.
Slide 19 obviously details very large margin pools from combining LCH with Eurex clearing. But I haven't seen a figure put on benefits from collateral efficiencies. And I think Deutsche Verdin on the side, in particular, has given sort of estimates of that in the past. So I was wondering if you could provide any more color about that potential benefit to the customers there. Thank you.
I think overall, and I'll let Xavier comment in a moment, both collateral and margin benefits across the group will depend very much on, which type of client is able to apply which type of jurisdictional as well as accounting treatment to their capital base. So we have a great confidence in improving the position for our customers, but would not want to rejudge the exact nature and detail of who can make which savings, but that would be my comment here. Xavier, do you have further to add?
Very much second that analysis. Obviously, the complementary match, if you want, of Orylikes listed derivative business together with LTH, ClearNet's global over the counter margin pool and capabilities, which are running a single default fund, offer a range of different customers, different offsets in terms of cost margining. There's no doubt that the margin that can be saved depends on which products in your own portfolio as a sell side or buy side participants you're running. It's also not just the products themselves, but the currencies. As you know, Swap Clear, for example, maintains a single default fund across all the major currencies in the world.
So depending on your positioning as a customer, you may be able to benefit from certain types of cross margining, whether others might benefit from others. And as Carsten pointed out, that also depend on your regulatory capital regime and the jurisdiction under which you operate. But there's no doubt that the margin offsets will be of substance as far as the regulatory capital savings. There's been a lot of research on the sell side and I'm sure you're familiar, Dan, having published some yourself. There is a lot of sell side research that presents a global perspective and I think most of that sell side research points towards substantive benefits.
Thank you.
The next question comes from Peter Leonardos from RBC.
Good morning, gentlemen. It's Peter Leonardos from RBC in London. I had a question on antitrust clearance, please. I know that the statement indicates specific countries in which you need merger control clearance, but I was wondering if this is going to be country specific clearance or if you intend to make a request at the European Commission for clearance there as well? Thanks.
I think all of the above are true, and we have started the process, of course. You, I think, are aware where there might be an overlap in our structure. And it depends, as usual, on the manner in which these very experienced authorities approach this, both in terms of market definition as well as opinion seeking. And we will not prejudge the process here, but believe we have very good ongoing solutions to this question.
Thanks, Carsten.
We have another question coming from Martin Price from Credit Suisse.
Thanks and Karen. Good evening.
Good morning. It's Smart and Price from Credit Suisse. My question was on the I was just wondering if there's a break fee payable by either party in the event that they decide to pursue an alternative offer. And if so, how much? I haven't seen any details in this morning's release, but anything you could say on that would be helpful.
Thank you.
Yes. The answer is no. So we can move on. No.
The next question comes from Gregory Simpson from Exane.
Hi, good morning. It's Greg Simpson from Exane here.
I was just thinking about the what the implications might be for
the current LCH minority shareholders if we think about the potential kind of combination of LCH and Eurex clearing? So would they become shareholders in
the new entity and share in
the potential cost synergies here? Thank you. I'll pass it on to Xavier.
Yes, thank you. As we've stated, the existing structures will remain unchanged. And therefore, the current participants, minority shareholders in LCH will benefit and continue to benefit up to the amount of their current stake in the business as a function of whatever flows come through LCH, and that will remain the case. So no changes there.
Okay. Thank you.
Next question comes from Owen Jones from Citigroup.
Good morning. My question is around the cost synergies that you have outlined, the €450,000,000 versus the €600,000,000 anticipated as I mentioned costs. Could you give us an idea please for the phasing of that $600,000,000 And perhaps just give us a bit more color, a bit more detail as to the relative positioning of that $600,000,000 versus the $400,000,000 anticipated savings? Thank you.
David, do you want to go at this?
Yes. Thank you. So we have estimated the cost to achieve as part of the work we have done on our confidence in the $450,000,000 of synergies that we're announcing today. The teams have worked very well together and we're certainly confident in both of those estimates. We are continuing to develop more detailed plans.
And as those plans develop, we can say more about the phasing of those costs to achieve.
Okay. Thank you.
At the moment, there seem to be no further questions. The next question comes from Tom Beckman from Investec.
Hi, good morning. Can you hear me? Yes. I was wondering whether you envisage that the either the LSE shareholder vote or the end of the acceptance period for the Deutsche Borse offer will take place before or after the U. K.
Brexit vote? It is envisaged for the UK shareholder vote to take place prior to the Brexit. And the end of the To the Brexit referendum. Excuse me? And the end of the acceptance period in Germany?
The end of the acceptance period in Germany is longer, so that is after the referendum date. Okay. Thank you.
And we have a follow-up question by Peter Leonardo from RBC.
Good morning, again gentlemen. Two follow-up questions. One very simple, what do you intend to call the combined company? And the second one, I was curious, if break fees have been agreed and what the quantum of those fees are? Thank you.
The question on the break fees is no, there is no break fee. And it is too early for us to discuss name proposals. Thank you. Thanks, Carsten.
Another question comes from Jason Calamboussis from Societe Generale.
Yes, good morning gentlemen. On just a quick one, simple question again. If I look with the synergies, your EBITDA margins would be around 56%. Is that where you would see the group? Is this the kind of margin that you would see the group delivering in the medium term?
And of course, probably it could be higher once you announce possible revenue synergies. But should we be thinking along these lines? Thank you.
David, do you want to?
Thank you
for the question. Yes, you can certainly look at the existing performance and projections of the 2 companies and you can calculate the pro form a. We're not going to comment today on where we would be in the future. But the thing that I would definitely underscore for you is we need to think about this as the value that this creates for shareholders. We've talked about the cost synergies.
We definitely believe they are achievable and we have significant revenue synergies, which we're continuing to do a lot of work on. So this is really about value creation. But beyond that, I can't specify where that will go.
Thank you.
The next question comes from Deniur Gerra from Barclays.
Yes, good morning. A couple of follow ups for me. There's a comment specifically in the text around LCH's commitment to its horizontal or open clearing model. There's a comment about the group being committed to open access clearing clauses of MiFID II. And there's obviously other comments around structure remaining unchanged.
So can I infer from that that the current sort of set up at Eurex of a vertical silo around clearing is likely to remain post deal? That would be my first question. Second question is the synergy realizations that are detailed, they seem pretty fast to me at 50% in year 1, 75% by the end of year 2. Can you make any comments around why you have confidence over that fast speed? Is it the fact that 50% of them come from the technology area and therefore they're relatively easier to achieve?
Any comments around that phasing would be great. Thank you.
Olivier, do you want to take the first and then David follows with the synergies?
Yes, certainly. It's clear that the LCH structure will remain as it is, as we've highlighted from the beginning. Current regulatory structures, current management, current principles remain unchanged. LCH has a structure which is today different from Eurex. And equally, as you heard from Carsten and you can hear from me as well, the combined group will be compliant with MiFID and MiFID legislation, which has specific provisions for open access for a range of products.
And you would expect as regulated entities will be in compliance with European law. But that said, in the short term, and I think that's the important point for customers, they will have the ability as soon as of course the processes are put in place and that is of course as always subject to regulatory approval by the relevant regulators, customers will be able to avail themselves of the benefits of cross margining between NeurX and LCH, independent of whatever model they operate under. They have the ability to becoming a customer of each other and through signing typical head of term to cross margin, the ETD, the lifted margin in the ETD world that is cleared by oil rights and the OTC businesses that are managed by LCH. So that is a benefit that again subject to regulatory approvals, customary regulatory approval can be achieved effectively as soon as possible.
Thank you.
Excuse me, again, excuse me, it's David. With respect to the second part of your question, look, we do have a high level of confidence in the overall number. As it relates to the phasing, the teams have worked well together. We're developing the detailed plans, implementation plans and would expect that there are a number of actions that we can implement immediately upon closing and in the 1st year. I would not point you to one particular area over another.
There are opportunities in each of those three areas that can be achieved immediately. And then there are certainly some technology harmonizations that will take time. But certainly, our confidence in the number is high and the considerable experience that both companies have in delivering these synergies, I think allows us to deliver quickly.
Thank you, David.
Next question comes from Martin Price from Credit Suisse.
Good morning. I just had a couple of follow-up questions, please. First, is it likely that the combined group will target gross leverage of 1.5 times as is currently the case at Deutsche Borse? Or is that likely to fall as the contribution of the Clearstream subsidiary to group earnings declines? If so, what sort of gross leverage do you think you'd be happy running the combined group with?
And secondly, just a follow-up question on the antitrust process. Clearly, the cross marketing benefits that the enlarged entity will be able to deliver, it looked like it will be able to it will enable that the enlarged entity to attract more clearing flow, which could potentially make life harder for competitor clearing venues or new market entrants. So just be interested to know what gives you such confidence that the European Commission will be happy with that scenario. Thank you.
David, would you like to start off and then I'll make some comments and then Xavier to close off?
Yes. Thank you for the question. I won't project at this call today where the combined group would operate in terms of its leverage. I certainly will highlight to you, as you know, that these companies exist today without a lot of leverage. But I think that would be a discussion certainly among the Board in the context of a broader capital management framework.
We definitely would anticipate maintaining a strong balance sheet. We need to have the flexibility for the investments in growth opportunities, which are significant. We will certainly have a focus on maintaining our rating strong ratings, including the Clearstream rating. And within that capital management framework, we would look to leverage seek the balance between leverage against capital returns.
Yes. Just to add to this, there is no change in our sort of self proclaimed AA target for PeerStream. And as you suggest in your question, there is a little bit more flexibility as the combined business is something that is larger where Clearstream's portion, which is highly significant within Virtu Versa framework right now, would obviously proportionally decline a little bit. But I think David answered the question. As far as antitrust, and I'll let Xavier comment as well on this.
It's a process, as you know, that follows through a very sophisticated method of the authorities in question. We believe that LCH and Urexx largely operate in businesses where one has an OTC leaning, the other has an ETD leaning. And therefore, complementarity is beneficial for customers, market stability, systemic risk stability and transparency overall. And by virtue of them operating though in those different arenas, I think it already on the way in offers any mitigant to viewing them as combined businesses. Savi, do you want to add a little bit?
Carsten, obviously, anyone can do their own analysis. And as we said before, it is not appropriate of us to prejudge what any regulatory authorities on the one hand and competition authorities on the other might say and how they would analyze this particular transaction. We've obviously done our own homework, but we do believe that the transaction as currently contemplated offers significantly enhanced customer benefits in terms of access to deeper pools of liquidity, enabling the scale up of European industry, particularly the all important small and midsize enterprise segment, which needs to be well served by an enhanced source of funding vehicle, which is the whole point of the Capital Markets Union, effectively developing alternatives to the traditional model of bank lending as sole source of funding. So it is in that context and the wider context, of course, that authorities together with technical analysis that as you would expect involves market share, competitive dynamics, etcetera, informs what is a complex analysis. So at this stage, it would not be appropriate for us of us to give you any sort of internal analysis we've done.
Again, we will not prejudge the authorities, but we do believe that the creation of this globally relevant and competitive group, keep in mind that many of our businesses are global businesses. They are not just to be viewed in the context of European market shares. Our index businesses, combined or even separate, operate on a global scale. Our clearing businesses operate on a global scale, both in Asia and the United States. Our technology businesses operate on a global scale.
Our clients, our globals and many of our regulators actually are outside of Europe. As you can see where I'm going is that this is quite a complex analysis, and we believe that the competitive and customer benefits that we offer will make a compelling case, but that is all we're prepared to say at this stage.
Understood. That's very helpful. Thank you.
The last question comes from Peter Alunaros from RBC.
Hi, gentlemen. Again, it's Peter from RBC in London. Just my final question would be, the statement indicates that the LSC directors are unanimous in their decision to recommend this. Carsten, I guess the question would be for you. I know that the Deutsche Borse directors have not rendered their decision yet, but is there intention to render a unanimous decision?
Thank you.
Thank you for the question. Actually, prior to engaging in this meeting, the Deutsche Borse directors also had to take such decision. And indeed, the supervisory board of Deutsche Borse has recommended unanimously this decision. Thanks.
Great. Thank you very much.
Maybe with this, I also want to thank everyone for participating in the call as we are now ready to close it. And thank you very much for participating and asking questions. Thanks.