Margareta Pagano: Eastward ho! Go on LSE, carve out a new silk route
Sunday 03 July 2011
I'm not at all surprised or the least bit disappointed that London Stock Exchange's attempt to buy Canada's TMX stock exchange has fallen through. Takeovers between exchanges are famously difficult to achieve as they are such political creatures, if not quasi-national institutions, which inevitably leads to protectionism, if not sentimentality, as the Canadians so vividly demonstrated.
And they are not all they crack up to be – ask Mme Christine Lagarde, France's economics minister and new IMF boss, who is said to be seething along with the rest of Paris at the massacre of Euronext after the NYSE takeover a few years ago.
While the Canadian takeover could have been a good one for LSE's investors, it was never a deal which was going to be a strategic game-changer. That's why I don't share the view of some critics who claim the collapse of the deal leaves the LSE vulnerable; the wallflower left behind as some of the world's big exchanges take to the dance floor.
Au contraire, as LSE boss Xavier Rolet might say. Investors don't either; the shares were still up on Friday at £10.33 on the news. No doubt, there's a little takeover speculation which has crept into the price too.
What now for London? Well, Rolet is understandably upset by the lack of support from TMX shareholders; who wouldn't be after months of sleepless nights negotiating, transatlantic lobbying and £25m or so spent on fees. But he, and chairman Chris Gibson-Smith, are far too savvy to let one slip-up stop their ambition to keep building London, and they'll be dusting off alternative options.
Rolet has achieved a great deal at the helm; the LSE is financially much stronger; a derivatives market is being built; it's bought MillenniumIT and Turquoise, bolstered its post-trade business, started a new retail bond market and forged new, exciting relationships with exchanges such as Mongolia. First-quarter results, out later this month, are likely to show revenues growing and flotations still flowing.
I can think of at least a dozen options open to Rolet – from staying in splendid isolation to pushing for a merger with Nasdaq. Other possibilities include going for LCH Clearnet, the plumbing business at the heart of trading which is up for sale for around £500m, and which could provide a steady income, as LCH clears for the listed equity and derivatives markets as well as OTC. Clearing is good business – as Werner Seifert, the wily old fox who ran Deutsche Borse for years, used to say: "This business is all about clunk click, clunk click." And LCH would provide clunk clicks in spades.
Or he could renew talks with other spurned exchanges such as Singapore, take a look at the US Bats Global Markets, or, indeed, start new talks with Tokyo. Then, there's also Liffe to wait for as the competition authorities won't allow NYSE and Deustche Borse to own both Eurex and Liffe when their merger goes through.
But my own view is that Rolet should get back on a plane to Hong Kong, if he hasn't already, because this is the real launch-pad into China and where most new listings are going either solo, or dual with London. Hong Kong says it wants a partner, and which better than London with its expertise and shared commodities knowledge?
It wouldn't need to be a takeover – a joint venture could be just as fruitful. In one neat step London would be retracing much of the old silk route which used to cross Asia, stopping in Mongolia, dropping down to Milan and back to the City.
Feminine touch: New IMF head has to restore fund's credibility
So Christine Lagarde, France's outgoing economics minister, made it as the first woman to head the IMF after the forced resignation of Dominique Strauss-Kahn. There's a certain irony that her elevation to the top job comes just as the sex assault charges against DSK look as if they are going to be dropped.
But this doesn't detract from from the good news. I've met her briefly, listened to her on why quotas for women are the only way forward, and she doesn't disappoint. She's polished and clever, but more importantly sharp and not afraid of being outspoken; she was one of the first to put the bankers in their place after the crash.
But Lagarde has got her elegant hands full: she joins the IMF at crisis point; both its credibility in redressing trade imbalances between nations and its role in healing a rioting Europe are being seriously challenged.
You could say, just the sort of pell-mell that needs some feminine guile.
Cows, raspberries and Lady Gaga – is the brilliant Zynga too good to be true?
Every month more people sign on to play a game called FarmVille on their Facebook account than live in the UK – there are about 83 million users a month at the latest tally.
It's a virtual-reality game in which players cultivate farms by ploughing, planting and harvesting. They milk cows, grow raspberries, trade in the farmers' market and even buy game cards at 7-Eleven, with products in about 7,000 US shops.
Zynga, the game creator, has recently launched FarmVille English Countryside, where players can create their own bucolic farmyards, while in May came GagaVille – a Lady Gaga-inspired farm where users collect their eggs and listen to her new songs.
If you think that's weird, there's also CityVille – which is played by around 100 million people – where players vote for the mayor; FrontierVille, where cowboys shoot each other; and Mafia Wars to name a few. They are all also Zynga games, and witness to an extraordinary gaming phenomenon which has gone largely unnoticed but which has gripped huge swathes of the public in the Web2.0 world over the past three years.
And Zynga makes money – tons of it. In some games, such as poker, players sell and buy poker chips with real money for what are essentially virtual goods, a practice copied from Asian firms which led the way with their "free to play" and "micro-transaction" business models.
You have to shake your head at the sheer brilliance of what Zynga founders Mark Pincus and Bryan Reynolds, and backer Bing Gordon, have created. Zynga is heading for a float on NYSE valuing it at up to $20bn. If it looks hot, it's because it is hot. But is it too good to be true? For now, Zynga has the security of the Facebook platform; giving it an audience of 500 million people.
But what happens when the five-year term expires? Can it move to other platforms? Where will it get other revenue? Zynga looks to me like a content provider – like the old Hollywood studios – but making games rather than movie blockbusters.
Anyone considering investing should ask whether the blockbuster comes with popcorn. It's the popcorn that makes the money long-term.
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