It’s codenamed Project Luna. But before Deutsche Börse and the London Stock Exchange can shoot for the moon with their mega-merger, they will have to get through a thicket of political, financial and regulatory issues on Planet Earth.

The two exchanges on Wednesday confirmed weeks of rumors with details of an all-share deal that would create a European capital markets behemoth. The proposed combination — more of a takeover by Deutsche Börse than their trumpeted “merger of equals” — would have a market value of some £21 billion and more revenues than any of its U.S. or Asian competitors, according to the two companies.

But the public launch of Project Luna is merely the start of a long journey that will bring the would-be partners face-to-face with Brussels regulators, national governments, shareholders, potential interloping rivals and, last but not least, a referendum on Britain’s membership in the European Union.

The two bourses’ strategy to get the all-clear for their merger by the end of this year or early 2017 as planned will involve a series of delicate balancing acts.

DB and LSE must persuade shareholders they will be an all-conquering global combination while not fueling fears among competition authorities about their large market share in areas such as securities clearing.

In another corner of Brussels, the partners will have to make a strong case that their combination dovetails with the Capital Markets Union being championed by the European Commission rather than crushing smaller European exchanges such as France’s Euronext. DB and LSE will also have to persuade politicians, investors and commentators in both London and Frankfurt that neither city will be shortchanged by the combination.

They’ll have to do all of that while potentially fending off a possible counter-bid by Atlanta-based ICE, owner of the New York Stock Exchange, keeping an eye on what Asian rivals such as Hong Kong Exchanges and Clearing will do, and contending with the uncertainty generated by the June 23 referendum on Brexit.

Given the road ahead, it is little wonder that DB and LSE executives began their multiple lobbying campaigns minutes after the deal was announced on Wednesday morning.

The first front was addressing the issue of the size and market share of the combined group. Both Carsten Kengeter, DB’s chief executive who is slated to take over the helm of the merged entity, and Xavier Rolet, the LSE boss who would step down after the deal, highlighted the symbiotic nature of their businesses — with Rolet describing the deal to journalists as “a wonderful balance.”

Whether that is the case will depend on Brussels. The most likely sticking point for the European Commission’s competition department is the combination of DB’s Eurex clearing house and LCH.Clearnet, majority-owned by LSE. “I think the central focus will be the combo of the two clearing houses and the competition from other clearing houses,” said a competition lawyer who declined to be named, citing an existing relationship with the merging parties.

Clearing is a crucial part of the financial system’s plumbing for both regulators and financial institutions because of the huge amounts of risk involved and the many new rules introduced after the market crash of 2008.

Commission officials were tight-lipped on Wednesday, but much will hinge on how they define the market for securities clearing. DB and LSE are expected to argue that both the markets for clearing exchange-traded derivatives, where Eurex is strong, and the one for non-traded securities, LCH.Clearnet’s forte, are global. Under those assumptions, the new European group would still be smaller than Chicago’s CME group in clearing for traded derivatives.

Clearing was a major issue in 2005, when the U.K. Competition Commission expressed concerns about a previous incarnation of this deal. But changes in the markets, the emergence of bigger rivals, and the introduction of new rules may help the DB-LSE’s case this time around.  “The world is very different now since 2005,” said the competition lawyer.

Halt the decline

The merger partners have hired two blue-chip law firms to help them in Brussels — Freshfields partners Simon Priddis and Alastair Chapman are representing LSE, while Linklaters’ Christian Ahlborn is acting for DB.

The deal would likely be reviewed by EU competition officials led by Alberto Bacchiega. Prior to taking up responsibility for mergers in the financial sector, Bacchiega headed up the team examining financial bailouts’ compliance with state aid rules during the financial crisis.

In a thinly-veiled appeal to Brussels regulators, Kengeter stressed that the new group would be ideally placed to meet all the new requirements arising from the second iteration of the Markets in Financial Instruments Directive (MiFID II), including the provision of non-discriminatory, open-access services.

But perhaps the most important argument was the one the German chief executive made to his company’s employees. In a townhall on Wednesday morning, Kengeter issued a passionate call for the merits of the merger: if we don’t do this, we will be bought by one of the fast-growing U.S. or Asian rivals that have expanded in Europe in recent years.

“We represent a worthwhile investment target for our competitors outside Europe,” he said, according to an English translation of his address. “Europe as a whole must be careful not to become the pawn of North American and Asian players.”

He went further in a call with journalists: “With this transaction, Deutsche Börse group is halting its decline in market share, which [it] has been undergoing for a number of years.”

The call to arms under the banner of a united Europe dovetails nicely with the argument the Anglo-German combination is likely to make to the Commission’s department for financial services: a European exchange player is the best way to achieve the Capital Markets Union proposed by the European Commission. Deeper pools of capital, larger exchanges for companies, and a better platform for small and medium-sized enterprises are among the carrots likely to be dangled by Kengeter and Rolet in front of Commissioner Jonathan Hill and others.

Indeed, the first words uttered by Kengeter in the press release announcing the deal were: “Strengthening the link between the two leading financial cities of Europe, Frankfurt and London, and building a network across Europe with Luxembourg, Paris and Milan will strengthen European capital markets. It is the logical evolution for our companies in a fundamentally changing industry.”

From a political perspective, the combination will benefit from having the joint might of Germany and the U.K. governments behind it, in an area — financial services — where the two countries dominate the discourse both within the Commission and the European Council.

Nevertheless, the Brexit referendum will cast a large shadow over the deal. Kengeter said the two companies have the option of asking LSE shareholders to vote on the merger either before or after the vote. That could give LSE and DB the flexibility to look at the Brexit polls before deciding on the timing. As for what would happen if Britain does decide to leave the EU, the two partners have said they would form a committee to study the implications.

In the event of a break-up, it is logical to imagine that more of the combined group’s operations would migrate to Frankfurt.

Brexit aside, convincing various interested parties in London and Frankfurt of the relative merits of the deal may prove tougher. The combined group’s complex structure — a holding company based in London but dual-headquarters in the U.K. and Germany — is designed to allay local fears and keep the same regulatory structure as two distinct groups.

The promised merger synergies of €450 million per year starting from the third year of the new entity also may lead to some job cuts. But Deutsche Börse and LSE were at pains to stress they would preserve the prestige and power of the two financial capitals by not moving any of the operations.

Kengeter, who is German-born but has worked all over the world for Goldman Sachs and UBS, even went where few other business executives have gone before: he praised Frankfurt’s lifestyle. “It is a great city with a lot of character,” he said.

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