Watchdog probes rival takeover plans for LSE

THE British competition watchdog yesterday ordered a probe into rival takeover plans for the London Stock Exchange (LSE).

The Office of Fair Trading (OFT) said it had asked the Competition Commission (CC) to investigate the proposals of German stock exchange Deutsche Boerse (DB) and pan-European exchange Euronext.

DB withdrew its bid earlier this month after pressure from shareholders, but said it was not ruling out a future offer if the LSE received rival bids. DB had also asked the OFT to continue with its investigation into its potential takeover of the LSE.

Euronext, which runs the Paris, Brussels, Amsterdam and Lisbon stock exchanges, has not made a formal offer, but has been in talks with the LSE about a potential bid.

OFT chairman Sir John Vickers said the approaches had come at a time of “emerging competition” in equities trading between the LSE, DB and Euronext.

“Although such competition has so far been episodic, it needs to be investigated whether either merger would lessen future competition in equities trading in the UK,” he said.

Sir John added that although DB and Euronext had made proposals to satisfy competition concerns, the OFT believed neither group was at this stage “able to resolve all competition concerns in a sufficiently clear-cut manner.”

The CC is expected to report the findings of its investigation by September 12. DB withdrew its £1.35 billion bid due to opposition from its shareholders and the LSE board. The German group bowed to demands from investors to return cash instead, possibly through a share buyback programme.

Reports a fortnight ago suggested rebel shareholders could also force Euronext to walk away from a takeover.

US hedge funds were reportedly set to oppose any attempt by Euronext to offer a price significantly higher than 400p a share, valuing the LSE at just £1 billion.

Euronext would have to better the indicative offer of DB - worth at least 530p a share - as LSE bosses have already rejected this as too low.

Analysts have highlighted the fact shareholders who opposed the DB bid owned as much as a third of Euronext. Yesterday’s announcement was the result of a two-month review by the OFT of the implications for competition of the two potential bids.

As part of the review, the OFT sent a questionnaire to customers of the LSE asking them which of the proposed mergers they believed would result in a more competitive outcome.

The survey reportedly asked customers how much leverage they believed they had in their negotiations with exchanges “given there appear to be relatively few alternatives to trading on an exchange.”

The survey also asked LSE customers whether they had threatened to switch trading volumes to another exchange or other trading methods, according to a report in yesterday’s Financial Times.