LSE shares slide as takeover bid scrapped

Shares in the London Stock Exchange fell 8% today after Deutsche Boerse scrapped its £1.35bn (€1.95bn) takeover proposal and fears grew that a rival suitor may also walk away.

The decision by Deutsche to bow to a shareholder rebellion gives Paris-based exchange Euronext a clear run to launch a formal bid for the LSE.

But LSE shares fell below 500p as the City questioned whether Euronext will be able to generate enough support for an offer, particularly as it shares many investors with its German rival.

Deutsche said its decision to withdraw its preliminary offer of at least 530p a share followed talks with its shareholders over the past month. It also cited the opposition of the LSE board which considered its offer to be too low.

It now planned to return a “significant” amount of cash to shareholders, but stressed that its bid could be resurrected if Euronext made a formal move.

Euronext – a combination of the Paris, Brussels, Amsterdam and Lisbon stock exchanges as well as the Liffe futures market in London – has remained tight-lipped on what it is willing to pay for the LSE but has outlined potential benefits.

It believes a tie-up could produce €203m (£139.8m) in annual cost savings and increased revenues.

Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, said: “Strategically, it seems that Euronext has played its cards right. The main thing in its favour is the fact that there is no bidding war on the horizon.”

Numis Securities analyst Justin Bates said today’s statement meant it was now a “one-horse race” for the LSE and a maximum price of 555p a share would win control.

He added: “Given the criticism that Deutsche Boerse has received we do not envisage them being able to return to the fray.”

In a statement today, Deutsche chief executive Werner Seifert said he was still convinced of the merits of bidding for the LSE.

But he said: “At the same time, we recognise that a significant portion of our shareholder base is focused on a return of capital in the short term.”

Media reports have suggested that as many as 35% of investors in Deutsche were opposed to a takeover of the LSE. Some had threatened to force a meeting to overthrow the board if their concerns were not met.

Deutsche announced a 27% improvement in the annual dividend last month and said today that it was developing a plan with shareholders to return additional funds.

The LSE has long been seen as a target of Deutsche, which has a market value of around $6bn (£3.1bn/€4.5bn), and the two companies were poised to merge four years ago.

At that time, the LSE was owned by its members who decided that a deal would not be in their interests.

The deal also foundered in the face of a hostile bid for the LSE from Stockholm Stock Exchange operator OM Group.

Last month, the City watchdog warned of “significant” implications for the LSE if a future owner moved it to another country, raising concerns that it might no longer be subject to UK takeover and corporate governance laws.

The Financial Services Authority also warned it might have to share responsibility for investigating market abuse with the authorities of the new owner’s country.

According to Bridgewell Securities analyst Geoff Miller, regulatory uncertainty would delay the timing of a Euronext bid.

He said: “We think it unlikely that Euronext will formalise any offer until after the Office of Fair Trading has decided whether or not to refer the case to the Competition Commission at the end of March.”