17 February 2005

OFT decides not to involve Brussels in LSE bid battle

According to an article in “The Independent” the chances of a speedier conclusion to the takeover battle for the London Stock Exchange rose after the Office of Fair Trading decided not to refer two rival offers to competition authorities in Brussels. However, the OFT can - and is widely expected to - send the bids by Deutsche Börse and Euronext to the UK’s Competition Commission. The test for a referral is whether a merger is expected to result in a “substantial lessening of competition” within the UK, the OFT said. A source familiar with the matter said: “There has been enough noise from Liba (the London Investment Banking Association), Euroclear and the Financial Services Authority - all the mood music suggests that it’s going to go to the Competition Commission.”

Liba, which represents many of the LSE’s users, and the pan-European settlement system Euroclear have voiced serious concern about Deutsche Börse’s “vertical silo” structure which could drive up tariffs, and said that trading platforms and clearing and settlement operations should be owned separately. Euronext, for its part, owns 41% of the clearing house LCH.Clearnet. The FSA has also raised concerns about foreign ownership of the LSE.

A Competition Commission examination would take several months and could impose conditions on the bidders before any takeover could be completed. The OFT has until the end of March - or longer, as the 40-day deadline is only a “target” - to decide whether to refer the offers. But the fact that the bids remain in the hands of UK antitrust officials promises a faster decision than if they had gone to Brussels. A European 'phase II' examination would have run until at least mid-September and possibly until November.

Deutsche Börse has seen its £1.3bn indicative bid twice rejected by the London exchange, while Euronext has yet to put a price on the table. It has suggested that it will unveil the value of its offer only when it is clear there are no regulatory hurdles. The OFT decided that the “UK remains the appropriate forum for competition review in this instance”, largely because of the location of the LSE and because the primary competitive impact of the proposed takeovers would be in Britain, where the majority of the exchange’s customers are located.

Deutsche Börse’s takeover proposal is also being scrutinised by the German cartel regulator, which sent it to the second phase of its antitrust review at the beginning of this month. A meeting between Werner Seifert, the chief executive of Deutsche Börse, and Clara Furse, his counterpart at the LSE, has been postponed until next week.

© The Independent