04 May 2006

The Independent: Euronext scraps LSE bid as Nasdaq lifts stake

The European exchange operator Euronext revealed yesterday that it is no longer in talks about a possible merger with the London Stock Exchange. Euronext is, however, still talking to Germany’s Deutsche Börse and other exchanges about potential tie-ups. The move came as the US exchange Nasdaq lifted its stake in the LSE to 18.7%, triggering renewed speculation of a bid.

Earlier merger discussions between the Germans and Euronext, which operates exchanges in Paris, Amsterdam and Lisbon, foundered on the location of the headquarters of a combined group, among other issues. Reto Francioni, the chief executive of Deutsche Börse, had demanded that Frankfurt be the new centre of operations, but has since softened his stance.

Traders and shareholders alike would welcome a merged European exchange, which is likely to offer cheaper transaction costs, particularly for clearing and settlement. One Euronext shareholder with connections to hedge funds has forced the exchange to ask all of its shareholders if they agree in principle to a merger with Deutsche Börse. This will be put to the vote at Euronext’s annual meeting on 23 May.

While combining with the Germans is a serious option, Euronext called on shareholders yesterday not to tie its hands in the quickly moving drive towards consolidation. The LSE has rebuffed approaches from four potential suitors - Deutsche Börse, Euronext, the acquisitive Australian investment bank Macquarie and America's Nasdaq exchange - over the past 18 months. Advisers to the New York Stock Exchange and the LSE are continuing to talk about a potential tie-up.

Although Nasdaq dropped its takeover attempt of the London exchange in March after a 950p-ashare offer was rejected, it subsequently bought a 15% stake for almost £448m. Yesterday, Nasdaq revealed it has lifted that stake to 18.7%, paying £119m to buy 9.8 million LSE shares from Wellington at 1,218p apiece. The acquisition entrenches Nasdaq's position as the LSE’s biggest shareholder, makes any rival bid more difficult and revived speculation that it may yet make another move on its London rival. The LSE’s most attractive asset is its trading system, Sets, which outpaces rivals’ set-ups.

Under Takeover Panel rules, Nasdaq cannot make a new offer for the LSE for at least six months after the previous one unless it gains the board’s backing or a rival bid is tabled. Any bid in the next 12 months would have to match or be higher than the level it has bought shares at in the market. Renewed bid hopes spurred LSE shares 26.5p to 1,244p, valuing the exchange at £3.1bn.
By Gary Parkinson

© The Independent