The deal, first proposed in May 2001 but since abandoned, is at an advanced stage and the two groups are "in detailed discussions about a potential merger of equals of the two businesses," according to an LSE statement on Tuesday.
"The Boards believe that the Potential Merger would represent a compelling opportunity for both companies to strengthen each other in an industry-defining combination, creating a leading European-based global markets infrastructure group."
"The combination of LSE and Deutsche Boerse's complementary growth strategies, products, services and geographic footprint would be expected to deliver an enhanced ability to provide a full service offering to customers on a global basis," the company said on Tuesday.
The potential deal also marks another success for M&A specialists over the big banks, with nine-person boutique Robey Warshaw scooping the lead role advising the LSE and Perella Weinburg Partners advising Deutsche Boerse.
A merger between the companies almost happened in 2001, but was scuppered by a bid from Sweden's OM for LSE. Deutsche Boerse tried again in 2004 but abandoned the bid in 2005.
Robey has had a stellar 12 months and is advising on a series of multi-billion pound mergers, including the tie-up between SAB Miller and Anheuser Busch Inbev.
LSE shares went ballistic on the news, up more than 18%:
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