Monday, November 20, 2006

LSE does it again

Only just the other day I remarked that in the ongoing exchange consolidation wars, the London Stock Exchange and Deutsche Bourse stood out like pimples on a pumpkin in failing to elicit greater economies of scale.

Deutsche Bourse's failure is not for lack of trying; it has courted the LSE on more than one occasion and then Euronext, but it was rebuked. While Deutsche Bourse is the rebuked, the LSE on the other hand, seems to be comfortable playing the role of the 'rebuker', having just rejected Nasdaq's bid for the second time according to FT reports.

After the failure of its first bid, which valued the LSE at 950 pence a share, Nasdaq CEO Robert Greifeld pitted his luck on his second round offer of 1,243 pence a share, which he described as a "full and fair offer." Well, try and tell that to Clara Furse, CEO of the LSE, who appears to be hedging her bets. Either she is happy for the exchange to go it alone in the ongoing exchange consolidation battle or she is waiting for a better offer?

Octavio Marenzi, CEO, Celent, says that the LSE has staked out a fiercely independent path and its recent outstanding earnings mean that Furse feels under no pressure to be bought out by anyone. "Firms making bids for the London Stock Exchange continue to show rather odd behaviour," says Marenzi. "Most notably, there is the tendency to make offers below the current market value of the exchange. Nasdaq appears to be attempting this again, with predictable consequences -- either the bid must be raised or it will fail."

Will Nasdaq retreat from its current bid like Deutsche Bourse has from its attempts to court Euronext? It is anyone's guess. However, despite healthy earnings at the LSE, can it afford to go it alone for much longer in view of recent announcements by Equiduct that it will establish a pan-European exchange and that seven investment banks will build an MTF?

As firms gear up for MiFID, a somewhat different trading landscape awaits the national exchanges, which have enjoyed monopoly status. But as rival "high speed" execution venues emerge offering lower trading tariffs and cheaper post-trade reporting services than the LSE, can Furse and the LSE's shareholders sustain their go-it-alone stance?

No comments: