Germany's Deutsche Boerse and the London Stock Exchange said Wednesday they had agreed to the terms of an "industry-defining" merger that would bring Britain's FTSE 100, Germany's DAX and the Euro Stoxx 50 index under one roof.
The merged trading behemoth would rival the largest stock exchange groups in the world, including CME Group and the Hong Kong Stock Exchanges and Clearing.
However, there are potential pitfalls ahead, ranging from regulators to the question of whether Britain is going to stay within the European Union.
The proposed "merger of equals" would not be upended by a British exit from the EU, Deutsche Boerse Chief Executive Carsten Kengeter said Wednesday.
"The new company will be successful irrespective of the outcome of Britain's referendum," Kengeter, who would become chief executive of the merged entity, told journalists after the companies announced the terms of an all-share merger of equals.
Britain is holding an in-out referendum on June 23 on its EU membership. Kengeter said that the companies had created a committee to assess how a so-called Brexit would affect the merged business.
The outcome of the referendum "might well affect the volume or nature of the business carried out by the combined group," the two companies said.
Competition authorities in Brussels are also likely to look into whether the merger of Europe's largest exchanges by market capitalization would create a monopoly.
But Kengeter said such concerns were unfounded and that a merged entity with better liquidity would "increase stability in the European capital markets."
The deal would see shareholders in the Frankfurt-based Deutsche Boerse take a 54.4-per-cent stake in the new entity and LSE shareholders take the remaining 45.6 per cent.
If the European companies succeed, their merged entity would have its legal headquarters in London and retain operations in both London and Frankfurt. Kengeter anticipates annual cost savings of 450 million euros (499 million dollars).
The move follows several attempts by Deutsche Boerse to merge with or acquire other exchange groups. The company was stymied in its attempt to merge with the New York Stock Exchange due to competition concerns and failed in two previous attempts to take over the LSE.
The LSE group owns the Milan-based Borsa Italiana, and the companies said their "combination of London, Frankfurt and Milan will provide a platform for financing and promoting economic growth of European companies and be an attractive offering to Asian and US companies looking to access investors and capital."
Xavier Rolet, the LSE's chief executive, who plans to step down once the merger is completed, said the companies were "creating an industry-defining combination which will be a leading global marketinfrastructure business."