Wed, Dec 15, 2004 - Page 1 News List

Foreign takeover of London Stock Exchange likely

THE GUARDIAN , LONDON

The London Stock Exchange (LSE) on Monday night looked likely to be taken over by one of its overseas rivals, after more than 300 years as one of Britain's key institutions.

The exchange yesterday revealed it had received a ?1.3 billion (US$2.5 billion) approach from Germany's Deutsche Borse, and other bidders are likely to enter the fray.

The centuries-old City of London institution immediately turned down the offer, which was made on Sunday night by the ambitious Frankfurt-based market run by Werner Seifert, a pipe-smoking jazz musician.

But the management of the London stock exchange, led by chief executive Clara Furse, has invited Seifert to talks later this week.

The decision by the LSE to engage in discussions with its German rival sparked expectations that other exchanges would make takeover or merger proposals.

Likely Contender

Euronext, a French-Dutch combine which already owns Liffe, the London futures and options exchange, was regarded as the most likely contender to try to spoil any agreed deal.

While the LSE is by far the busiest market in Europe for share trading, its own stock market valuation is in fact the smallest.

The LSE was worth ?1.4 billion yesterday, while Deutsche Borse was valued at ?3.3 billion and Euronext at ?1.8 billion. Unlike its two arch rivals, the LSE has concentrated on share trading rather than derivatives or on the lucrative business of clearing financial transactions. Its specialization in share trading has left it vulnerable to a takeover from its rivals, which have expanded rapidly in recent years.

Merger of Equals

Four years ago, before the exchanges had their own stock market listings, the LSE tried to achieve a merger of equals with the Deutsche Borse, but the ambitious deal was aborted on patriotic concerns.

Yesterday, such anxieties seemed to be taking a back seat to hopes among LSE shareholders for a high price for their shares.

If the LSE does succumb to an offer, it will be the latest in a long line of high-profile UK institutions to fall out of domestic ownership.

Liffe, London's futures market, is already owned by Euronext, while the City of London's major merchant banks have been taken over.

Ironically, though, while Deutsche Borse is based in Frankfurt, some 70 percent of its shares are not owned by domestic investors.

LSE shares, which have been rising steadily for six weeks on rumors of an approach, jumped by 25 percent, valuing the exchange at a record ?1.4 billion and above the ?5.30 per share which had been offered by the German exchange.

The LSE, which can trace its roots to informal dealings in City of London coffee houses in the early 1700s, is at the heart of Britain's financial markets. Deutsche Borse is promising to preserve the LSE, which has been through a series of incarnations in its lifetime. The biggest change came in the late 1980s when "big bang" replaced floor trading with electronic systems.

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