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LONDON (Reuters) - London Stock Exchange Group and Deutsche Boerse may have to delay a vote on their proposed merger until after Britain's EU referendum, handing more time to Intercontinental Exchange (ICE.N) to decide whether to make a counter-bid for the British bourse.
LSEG had been expected to hold a special shareholder meeting to approve the merger with Deutsche Boerse before Britain votes on June 23 on whether to quit the EU.
ICE would have to file any counterbid seven days before that meeting - with Britain's future in the European Union still very much in doubt. For American ICE, the London Stock Exchange would be a more attractive target within the European Union.
Deutsche Boerse still needs to file a full set of merger documents with its German regulators, a convoluted process that probably cannot be done now before the referendum date.
Sources familiar with the matter say LSEG may delay its shareholder meeting until this process is completed to ensure regulators are happy, though no decision has been taken and LSEG may still move early.
The London bourse could also risk a backlash among its investors by asking them to vote on the Deutsche Boerse deal before a possible Brexit, even though the two European exchanges have presented their proposed deal as "Brexit" proof given their combination would straddle the EU and Britain, should it leave.
If the pair wait until after the referendum to try to seal their all share "merger of equals", uncertainty over Britain's future will have been removed. ICE will have more time to come up with a rival bid and win the backing of its shareholders.
Departure from the bloc would create upheaval for London, Europe's biggest financial center where trillions of pounds of day-to-day business runs on EU rules.
One person familiar with ICE said any counter bid would likely be a straightforward takeover in the form of shares and some cash, and at a premium that is "reasonably higher than Deutsche Boerse's".
This would put pressure on Deutsche Boerse to sweeten its deal - which currently offers LSEG shareholders 0.4421 shares in the combined group per LSEG share they own - by including a cash element or extra dividend.
LSEG, ICE and Deutsche Boerse did not comment for this article.
A takeover by ICE would create the world's biggest trading-to-clearing exchange group, crossing the Atlantic and trading and clearing stocks, derivatives, energy and commodities.
ICE is a known quantity to UK regulators. It bought the International Petroleum Exchange in 2001 and later became owner of London-based LIFFE derivatives exchange, rival of Deutsche Boerse's Eurex platform, as part of ICE's takeover of New York Stock Exchange-Euronext in 2013.
ICE, however, faces some thorny questions: could a combined business still be regionally attractive under a Brexit, can it afford a knock-out offer, and would EU competition regulators approve a deal?
Supporters of Deutsche Boerse's all-share deal say ICE is too indebted to make a killer bid after paying $5.2 billion in December for data firm IDC, a view those close to ICE dismiss. ICE had a consolidated debt of $7.3 billion at the end of 2015, according to its annual report.
But leaking news that ICE has lined up a group of banks to help finance a possible deal was a handy trial balloon to test the reaction of ICE shareholders, analysts said.
It had no major negative impact on ICE's shares.
"They are very conscious of their own stock price, that they are a growth company. If they had not done the IDC deal, you would see this move a little quicker," said Richard Daniels, senior analyst of TABB Group in New York.
In any case, ICE would have a year or so to reduce its debt to core earnings ratio before it had to write a check for LSEG, ICE's supporters say.
A banker not advising ICE said the company has the capacity to fund a takeover while repaying debt thanks to its high margins and proven record of creating value through acquisitions.
ICE, however, is seen as having less scope than Deutsche Boerse to trumpet a big headline figure for synergies.
"Most Deutsche Boerse synergies would come from cuts in high tech jobs in Frankfurt. Half of the synergies will come from IT. ICE is leaner," a person familiar with ICE said.
A combined ICE-LSEG group would have operations in continental Europe and London to ease the impact of a Brexit. LSEG owns Borsa Italiana in Milan and LCH.Clearnet, a clearing house based in Paris and London.
However, to get round possible competition concerns and sweeten France, ICE could offload Borsa Italiana and the French Clearnet half of LCH.Clearnet to Paris-based exchange Euronext, TABB's Daniels said.
Proceeds from such sales would also help ICE pay down debt while still leaving a combined LSEG-ICE Group with ICE's existing euro zone trading and clearing operation in the Netherlands.
Others are more skeptical that this would be enough.
"ICE faces the same antitrust concerns as Deutsche Boerse, which I feel are insurmountable when it comes to clearing in European derivatives," said Patrick Young, publisher of industry daily Exchange Invest.
Under a Brexit, the European Central Bank would be expected to put pressure on market participants to shift euro-denominated trading and clearing, currently a major chunk of London's business, to the single currency area.
ICE's euro zone based operations are seen as too small and specialist for now to handle such large volumes in a short period.
Deutsche Boerse has said its deal is Brexit-proof, though some analysts doubt any deal can be and question whether the German exchange's shareholders would fall in line if Britain left the EU.
"If Brexit happened, that would likely prove a major issue and most likely a deal-breaker for both deals," a banker close to exchanges said.
Additional reporting by John McCrank in New York and Anjuli Davies in London; editing by Janet McBride