Börse denies plan to spin off Clearstream to aid LSE takeover

Deutsche Börse insisted yesterday it had no plans to spin off its Clearstream settlement subsidiary in order to clinch its takeover bid for the London Stock Exchange.

The German stock market operator was forced to deny reports attributed to "insiders" that it had already drawn up plans to sell off the unit. A spokesman for the company declined to comment on speculation that it could raise its offer by 70p a share, or more than 13 per cent, to fend off an approach from Euronext, the Paris-based exchange.

Walter Allwicher, Deutsche Börse's spokesman, said: "The company has always had a policy that we do not comment on speculation. On Clearstream I can restate that it is an integral part of Deutsche Börse group and we have no intention to spin it off."

Clare Furse, the LSE's chief executive, will meet Werner Seifert, her opposite number at Deutsche Börse, on Thursday for fresh talks. Ms Furse is also due to meet Jean-François Theodore, the head of Euronext, which is rumoured to be considering a bid of 580p a share.

Deutsche Börse made a 530p, or £1.3bn, approach to the LSE on 13 December, its second attempt in four years to create a dominant European stock market, which would be the world's second largest.

The LSE immediately rejected the offer as "undervaluing" the company but in effect put itself up for sale, saying it would hold further talks to see if a "significantly improved" deal could be agreed. Its shares closed at 582p on Friday, posting a 74 per cent rise for 2004.

Olaf Kayser, an analyst at Landesbank-Rheinland Pfalz, said: "Seifert will be expected to make further concessions in addition to an improved price."

Independent Research analysts said the German firm was under pressure to make a higher offer because it could not risk Euronext buying the London Exchange.

"We see more risks than chances [for Deutsche Börse] in the current situation and recommend to reduce the stock," the analysts said. However, Deutsche Börse believes its current offer is "full and fair", pointing to the 350p a share value the stock carried before the takeover speculation began. The issue over Clearstream arises because Deutsche Börse runs a "vertical silo" of trading, clearing and settlement. LSE, however, uses LCH.Clearnet, in which Euronext holds a large stake, for its clearing and settling.

UK brokers have expressed concerns because the German exchange controls the direct sale of shares to brokers as well as the back-office function.

Deutsche Börse has indicated that it would not change the clearing and settlement system in London in the face of opposition from customers. Mr Allwicher said: "Clearstream does not fit into the picture because a merger between Deutsche Börse and the London Stock Exchange is not related to the Clearstream business."

Deutsche Börse has given assurances that there would still be competition in clearing and settlement services. It also said that UK blue-chip trading and regulation would remain under the UK's Financial Services Authority, while German share regulation would remain in Frankfurt.

Like the LSE, Euronext does not control its settlement and clearing providers. The LSE declined to comment on yesterday's developments.