A spat over which city would claim the headquarters of Europe's new trading giant is widely seen as the key reason behind the likely abandonment of the London Stock Exchange's (LSE) 29 billion euro ($31 billion) merger with Deutsche Boerse.
While the official reason for the current impasse is the LSE's refusal to submit to the European Commission's demand for a sale of its 60 percent stake in Italian fixed income trading platform, MTS, many industry insiders suspect growing tensions over where the group would be registered to be the biggest stumbling block to further progress at this stage.
A spokesperson for the Commission said that its investigation of the merger was still ongoing and would not make a decision on this case until April 3.
Furthermore, in these kinds of mergers, the spokesperson said, if the Commission raised competition concerns, it was up to the parties to either reject the concerns or suggest a remedy. These proposals are then market-tested and any new concerns are sent back to the merger partners to propose further changes.
Deutsche Boerse's surprise at the LSE's refusal suggests that the action was taken unilaterally, however, recent months have simultaneously seen growing political discomfort within Germany over the notion of the U.K. assuming the combined group's headquarters.
Industry insiders, who have asked to remain anonymous due to the still-sensitive nature of the merger, have pointed to the last-minute submission of proposed remedies to the Commission as an indication of the precarious nature of the deal.
The original merger terms specified that the combined company would be run by Deutsche Boerse's CEO, Carsten Kengeter, a decision seen as part of a trade-off that would ensure London became the group's main headquarters. While a soothing result for Britain, it was a less palatable sell to the Germans, whose sensitivities regarding the location had spiked in the wake of the Brexit vote.
Industry insiders claim that there was a mistaken belief within some circles in Germany that giving up the headquarters to the U.K. was a short-term concession that could be reversed once the deal had completed. In fact, this would have been highly difficult to have achieved from a stakeholder vote perspective - it would have required the support from 75 percent of board members of a group composed of 50 percent British representatives - as well as being cumbersome and time-consuming.
In an attempt to assuage concerns within Germany, Deutsche Boerse's Kengeter kicked off a lobbying tour of Berlin, targeting the country's highest level politicians to win backing for the deal. Yet his efforts were misdirected, according to the German press. While Berlin's politicians were less flustered over the headquarters' location, politicians in the German state of Hessen, home to the financial capital Frankfurt and Deutsche Boerse, were significantly more concerned over the idea of their crown jewel of a European exchange sacrificing its local headquarters.
Kengeter's apparent failure to manage the political element of the merger process could have had something to do with his enthusiasm for a London headquarters, according to reports in the German press – indeed, the U.K. capital is where his family resides and much of his daily business unfolds.
CNBC contacted both the LSE and Deutsche Boerse who declined to provide on-the-record comments.
Many other elements beyond national politics have been highlighted as potential contributors to the current rockiness of the deal's prospects, including the LSE's wish to tread carefully around its relationship with the Italian regulator; insider trading accusations levelled against Kengeter, which he has denied; strategic interference by motivated third parties such as Euronext and the European Commission; and the possibility for a better future for the LSE with another suitor. This despite widespread support for the sound economic rationale of the deal for both customers and shareholders alike.
Indeed, while "the chances of the deal completing were finely balanced from the outset," according to analysts at Citi in a note published Monday, their peers at Commerzbank suggest that a standalone future looks significantly brighter for the LSE than for Deutsche Boerse.
"We believe LSEG offers the best combination of structural growth and future M&A potential," said the Commerzbank analysts in a note on Tuesday, citing the U.K. exchange's exposure to secular growth trends, its partnership approach and favorable regulation and cost-cutting initiatives.
"Even after the potential failure of the merger with Deutsche Boerse, LSEG is likely to remain on the M&A radar as a potential takeover target: Well-performing assets are hard to find and extremely expensive in a consolidating industry," the note added.
Meantime, the same analysts cut Deutsche Boerse's 2017 and 2018 earnings forecasts, highlighting a subdued start to the trading year.