Watchdog clears the way for LSE bid

The Competition Commission gave the green light yesterday for a formal bid by European bourse operator Euronext for the London Stock Exchange.

Ending a seven-month enquiry into takeover plans by Euronext and Deutsche Boerse, the Competition Commission said both companies must take steps to reinforce the independence of and not obstruct access to the LSE's clearing house activities.

Euronext, which analysts see as the frontrunner, can now move closer to formalising a bid, but many obstacles remain, not least the price it would pay for LSE, currently valued at around £1.5 billion.

"At least we know where the Competition Commission stands," said Mamoun Tazi, analyst at Man Securities. "It paves the way for Euronext to table a bid."

Euronext said in a statement it would continue to work with its shareholders in looking at all available options to boost shareholder value.

Bourses are under pressure to merge to cut costs as pressure on fees continues and as a single European Union market in financial services emerges.

"There's a tremendous attraction in putting together two of the exchanges as they are relatively fixed-cost-based businesses," said Andrew Mitchell, analyst at Fox-Pitt, Kelton.

"The issue now is about fixing the right price and delivering the synergies."

The operator of the Paris, Amsterdam, Brussels and Lisbon bourses, and of London's Euronext. Liffe derivatives exchange, has yet to name a price, although sources familiar with the situation have said the LSE board will only accept an offer above 600p a share.

Euronext pledged earlier this year to wring out twice as many savings as Deutsche Boerse in a takeover.

LSE shares were up 0.5 per cent at 569.5p pence in London around midday, valuing the firm at just under £1.5 billion. Euronext shares were up two per cent at €36.10. Its market value is just under €4 billion.

The LSE said it was happy with the Competition Commission's findings, adding it was continuing to "pursue opportunities to enhance shareholder value".

Shares in Deutsche Boerse, which is valued at about €8.8 billion, were up 1.8 per cent at €79.97. Dealers said the rise signalled expectations the German company would be not be drawn into a bidding war for its London rival.

Deutsche Boerse can still bid, but analysts say this is unlikely after it withdrew an offer in March amid shareholder objections over cost and a lack of consultation.

Its chief executive, Werner Seifert, later resigned.

Its new CEO, Reto Francioni, takes the helm today, but analysts do not expect him to rile shareholders.

"If Deutsche Boerse wants to counterbid, it can, but we don't expect it will," said Mr Tazi at Man Securities.

Deutsche Boerse has said it might re-enter the race if Euronext makes an offer. Yesterday, the German company declined to comment on whether the commission's findings would spur it into action.

"The condition that Deutsche Boerse, if it were to take over the LSE, would have to forsake the London clearing business, reduces strongly the attraction of an acquisition," said Karsten Heil, an analyst at Helaba Trust.

In September, Paris-based Euronext said it was ready to cut its stake in clearing house unit LCH.Clearnet to 24.9 per cent from 41.5 per cent to allay concerns a merged Euronext-LSE would harm competition by tying customers to their clearing services. Deutsche Boerse said at the time it was not willing to sell its Eurex Clearing unit.

Australia's Macquarie bank has also said it may bid for the London exchange.


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