Börse moves closer to hostile bid for LSE

Time is running out for the London Stock Exchange (LSE) to recommend a bid by Deutsche Börse before the German group mounts a hostile bid, according to sources familiar with its plans.

Time is running out for the London Stock Exchange (LSE) to recommend a bid by Deutsche Börse before the German group mounts a hostile bid, according to sources familiar with its plans.

An offer direct to LSE shareholders is expected by the end of next week, with the Germans having decided they have come too far to walk away from a deal.

Speculation is mounting that Deutsche Börse will soon make a filing with the Office of Fair Trading of its intention to make an offer for the LSE. Such a move would kick-start the potentially lengthy regulatory process which would have to be cleared by Deutsche Börse but would also add pressure on the LSE management in the delicate talks under way at the moment between the two sides.

The Deutsche Börse camp believes that at least one-third of LSE shareholders will have a customer relationship with the enlarged group and therefore benefit from the lower user tariffs planned by Deutsche Börse while having already benefited from the surge in the LSE share price since the prospect of a takeover emerged in December. Deutsche Börse believes this will be significant in gaining the LSE shareholders' approval should it be forced into a hostile bid.

Deutsche Bank, a key supporter of the Deutsche Börse bid, which is taking a lead in arranging finance for the all-cash deal, now owns more than 8 per cent of LSE shares after continued buying was revealed yesterday.

Regulators are also starting to position themselves for the fallout from a takeover of the LSE by its German counterpart. Jochen Sanio, the president of Germany's financial regulator, BaFin, said a takeover would require only bilateral co-operation between it and the Financial Services Authority in London, which regulates the LSE.

However, it is thought the FSA sees the future regulation of Europe's main stock exchanges as more akin to the situation surrounding Euronext, the French-based stock market operator which owns Liffe, the London financial futures and options exchange.

This is organised as a "regulator college" with the relevant UK and European regulators having signed a memorandum of understanding. Something similar is envisaged if Deutsche Börse acquires the LSE, although the FSA refused to comment before any deal being announced.

Any takeover of the LSE would almost certainly be referred to the Competition Commission after an initial inquiry by the Office of Fair Trading. Europe's top competition official, Philip Lowe, said yesterday he expected the EU to take an active role in examining the implications of a Deutsche Börse takeover of the LSE.