Euronext battles rival for LSE purchase

EURONEXT squared up to Deutsche Boerse in its $2.5 billion battle for the London Stock Exchange yesterday.

It said its planned cash bid would ring twice the benefits as that of its German rival.

The winner would become the world’s second-biggest stockmarket and put it in pole position to compete for listings with the global leader, the New York Stock Exchange.

Euronext did not say how much it would pay, but promised investors annual pretax cost and revenue gains of around €203m, enticed users with fee cuts, and spoke of a primary listing in London to reassure British regulators.

The savings target “seems extremely aggressive and probably implies a pure and simple disappearance of London’s IT systems,” said Stephane Nieres-Tavernier, an analyst at CDC Ixis Midcaps in Paris.

“This offer does not look necessarily better for LSE shareholders at this stage, notably in terms of fee cuts,” he said.

Euronext shares were up 4.2% at €25.27 in afternoon trade while the LSE was up 1.2% at 572 pence. That was well below a high of 600p reached in December but above Boerse’s proposal of 530p per share in cash. Deutsche Boerse stock was up 0.7% at €49.22.

Euronext estimated it could cut annual costs by €152m in the second year after the merger’s completion, and add €51m to annual revenue in the third year. Most of the savings would come from moving to a single share trading platform within two years.

There would also be savings from closing the office of Euronext’s British derivative exchange LIFFE and moving staff to the LSE building. A third of Euronext’s headcount and 41% of revenue were already centred in London.

The pan-European bourse operator said that its LSE merger plan would involve total restructuring and revenue investment costs of around €184m. Euronext has already cut 21% off the combined cost base of its constituent markets.

The €203m savings would represent a further 17% cut in the total costs of Euronext and the LSE. Deutsche Boerse has said a merger would bring savings of at least €100m a year from 2008.