Civil war as Deutsche bid for Stock Exchange nears collapse

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The Independent Online

Deutsche Börse's £1.3bn bid for the London Stock Exchange (LSE) is on the verge of collapse after divisions emerged on the group's supervisory board and investors opposing the offer bought millions of shares in a move to block it.

Deutsche Börse's £1.3bn bid for the London Stock Exchange (LSE) is on the verge of collapse after divisions emerged on the group's supervisory board and investors opposing the offer bought millions of shares in a move to block it.

Two major US shareholders - Fidelity and Merrill Lynch Investment Management - came out against the bid late last week, taking the number of rebel investors to 38 per cent of the Börse's capital.

However, this figure is sure to increase as allies of the two hedge funds leading the rebellion - The Children's Investment Fund (TCI) and Atticus - bought heavily in the market. "This battle is becoming personal," said a source close to the hedge funds.

Many of the investors have written to the Börse's chairman, Rolf Breuer, calling for the bid to be dropped. Some funds also want the company to return a large part of its €700m (£485m) cash pile to investors.

If the Börse refuses, then the shareholders aim to force resignations, as was exclusively revealed in The Independent on Sunday two weeks ago. The investors intend to put a motion before the Börse's annual general meeting in May calling for directors to quit.

Werner Seifert, the Börse's chief executive, has steadfastly refused to bow to shareholder pressure, saying his board is solidly behind him. However, this support is buckling, with a number of directors saying that the Börse cannot go ahead with the bid without a mandate from its shareholders. Any attempt to ballot investors would, in effect, kill off the deal.

The collapse of the Börse's offer would leave the way clear for Euronext, the Franco-Dutch exchange group which owns the Liffe futures and option market.

It has put a detailed offer to the LSE, but has not declared the price it would pay. If the Börse pulls out, Euronext is unlikely to offer much more than the Börse's £1.3bn.

Pressure for the regulators to take a close look at the battle for the LSE is mounting. Michael Savory, the Lord Mayor of London, has called for all bids for the LSE to be referred to the Competition Commission.

Mr Savory, who spent most of his career in the City, latterly with HSBC, believes that the Competition Commission should investigate whether an enlarged LSE should be more tightly regulated.

"The Competition Commission should look at whether the exchange is treated as a mutual utility and whether it should have an overarching regulator - Ofstock - to ensure that standards are maintained," he said.

Mr Savory's comments will disappoint both the Börse and Euronext as a Competition Commission investigation would drag on all summer.

The Office of Fair Trading has ruled that it will consider any bids for the LSE rather than refer them to Brussels. It has the power to either approve the bids with or without conditions or refer the matter to the Competition Commission.

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