London Stock Exchange launches fightback to save iX merger deal

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The Independent Online

The London Stock Exchange will come out fighting this week to defend its merger with the Frankfurt market in the face of growing pressure from shareholders to renegotiate the terms of the deal.

The London Stock Exchange will come out fighting this week to defend its merger with the Frankfurt market in the face of growing pressure from shareholders to renegotiate the terms of the deal.

The LSE will hold a joint presentation with Deutsche Börse on Thursday to set out the benefits of its deal to create iX, an international stock market.

The two stock markets have been forced to fight back after it emerged on Friday that OM Gruppen, owner of the Swedish stock market, had made an informal takeover offer.

Don Cruickshank, the chairman of the LSE, will focus on the savings that will be achieved by cutting the costs of back-office functions and eliminating cross-border transaction costs.

Clearstream, which handles the clearing and settlement functions for Deutsche Börse, is expected to give details of plans to cut the cost of share transactions. David Cowan, director of public affairs, said Clearstream would reduce back-office charges on share transactions, which currently average £5 a deal. It is understood they will aim to reduce that by up to 80 per cent. "If OM comes in, all they can bring is the money," he said. "In terms of cutting back office costs, OM does not even pass first base. This is not a viable bid because it does not resolve how they are paying for the market infrastructure, which is why the LSE agreed to the merger with Deutsche Börse in the first place."

Clearstream will work with Crest of the UK to handle those functions for iX.

OM is expected to table a hostile £800m bid as early as today. Analysts said shareholders would use the Swedish offer to force LSE and DB to come up with better terms for the deal.

Blake Nixon, UK executive director of Guinness Peat, criticised LSE for presenting the German deal as "a fait accompli". "We believe that the merger is unduly favourable to the Deutsche Börse. That is something which we believe would need to be corrected," he said.

Another shareholder said the Swedish approach would serve to highlight the weakness with the Deutsche deal: "All the issues which the LSE is highlighting as a reason to dismiss the approach - uncertainty about their computer systems, management and integration - are equally issues which apply with the Deutsche Börse alliance."

An LSE spokesman admitted a formal bid by OM would almost certainly force the vote on the creation of iX, scheduled for 14 September, to be delayed. "Were an offer to be made to shareholders [by OM] we would consider the implications for the timetable because we would be mindful of the need to give shareholders adequate time to consider the information. The ball is now in OM's court." But analysts were divided over whether OM would table a hostile bid. "They will make a formal offer straight to the shareholders," said a Stockholm analyst. "There is no chance they will now back off and drop the whole plan."

Others said the OM offer might only be a ruse to derail the creation of iX. Mattias Gredmark of MeritaNordbanken, said: "I don't think OM seriously considers it can succeed with the bid and they only want to disrupt the merger between LSE and Deutsche Börse.".

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