London Stock Exchange, Borsa Italiana Discuss Merger
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The London Stock Exchange has finally revealed its hand in the consolidation sweeping the industry by entering merger discussions with its Italian rival Borsa Italiana.
The LSE, which has rejected offers from Euronext, Deutsche Borse, OMX, Nasdaq, and the Australian investment bank Macquarie, confirmed Tuesday that it “is in discussions with Borsa Italiana to establish whether a merger of the two businesses can be agreed.”
It is believed that the LSE is ready to sign a memorandum of understanding for an intended merger and that the Italian exchange met yesterday to approve the details.
The LSE would be the senior partner in a merger with Borsa Italiana, Europe’s fourth largest exchange, which is unlisted and owned by several Italian banks.
Borsa Italiana is believed to be worth about one billion pounds, compared with the LSE’s 2.75 billion pounds market capitalization.
The chief executive of the LSE, Clara Furse, is understood to have discussed a possible merger with her counterpart, Massimo Capuano, twice last year.
She is thought to be attracted by Borsa Italiana’s strong derivatives platform, an area in which the LSE is weak, and its leading IT system.
As has been the case across the industry, consolidation is expected to bring greater cost efficiencies in the clearing and settlement of trades due to the larger volumes. Debate over the terms of the merger will also involve tariff levels and management control.
Mr. Capuano is believed to have been very keen on a merger with the LSE last year, but turned to Euronext and Deutsche Borse after initial talks failed.
However, his contingency plan to create a “super exchange” by orchestrating a three-way merger fell apart after Euronext agreed a 6.3 billion pounds deal with the New York Stock Exchange.
Consolidation has also seen Nasdaq, which made a failed 2.7 billion pounds bid for the LSE, agree to buy Nordic operator OMX for $3.7 billion.
The LSE’s merger could still be complicated by Nasdaq, which retains a 30% stake in the British exchange from the time of its failed bid last year.
Analysts said a combined Nasdaq-OMX could make another approach for the LSE. However, a merger would also make the LSE a far more expensive target.
