LSE faces pressure to tie-up with EuroNext

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The Independent Online

Don Cruickshank, the London Stock Exchange chairman is under mounting City pressure to explore an agreed deal with EuroNext on the back of indications that the rival French-led stock exchange group would be willing to concede a lead regulatory role to London's Financial Services Authority.

Don Cruickshank, the London Stock Exchange chairman is under mounting City pressure to explore an agreed deal with EuroNext on the back of indications that the rival French-led stock exchange group would be willing to concede a lead regulatory role to London's Financial Services Authority.

The insistence of the Germans on joint regulation of iX, the planned Anglo-German superbourse, by the British and German authorities, has been one of the key concerns among UK brokers, investors and companies about the London-Frankfurt deal.

Retail brokers led by Brian Winterflood are hoping Nasdaq, the US technology exchange, will now bid for the LSE following last week's £900m hostile bid from Sweden's OM exchange. However, the big investment banks who dominate the City are looking for a deal that will guarantee London a position in cross-border consolidation in Europe, that neither the OM bid nor a rival offer from Nasdaq alone would provide.

A bid from a technology group such as ITG or Instinet, the Reuters broking arm, which is understood to be considering a cash bid for the LSE, would come up against similar objections.

While most of the investment banking big hitters are broadly behind the iX deal with Frankfurt even after last week's OM bid, some like UBS Warburg have already expressed doubts about aspects of the iX merger and believe EuroNext's more flexible attitude on regulation as well as settlement and clearing has much to commend it.

Said one banker "Almost everyone in London would want the LSE to talk to EuroNext. In fact the only people who don't are the London Stock Exchange board."

Jean-Francois Theodore, the chairman of both Paris Bourse and EuroNext approached Gavin Casey, the Stock Exchange chief executive in April with a deal which would have given London 50 per cent of EuroNext. This would have given it the largest slice of any of the exchanges in the group which is being formed from the Paris, Amsterdam and Brussels exchanges - although not a majority stake. More importantly, he was willing to allow FSA the lead regulatory role over the combined exchange.

Despite being repeatedly rebuffed senior EuroNext officials have made it clear since the OM bid was launched that they are still interested in talks.

OM is expected to publish its formal offer document later this week, starting the clock on the 60-day bid timetable.

So far Mr Cruickshank has refused to entertain discussions about rival bids insisting that the iX Frankfurt merger remains the best option, despite the widespread view in the City that last week's £900m hostile bid from OM, the Swedish group, meant the iX deal will not get through on its present terms. Mr Theodore has also struck a deal with the London Clearing House to provide Central Counterparty (CCP) facilities for EuroNext.

The London Clearing House will have a CCP for London up and running by next year. EuroNext could count on the backing of Michel Pébéreau, chairman of BNP Paribas, the French bank, who has argued vociferously that such an arrangement would be better for London than the iX deal.

Other French banks, including Société Générale would also be willing to provide finance if needed to fund the cash element of a rival bid. EuroNext members are readying themselves for an initial public offering (IPO) early next year that is likely to value the group at over 2.3bn euros or £1.44bn.

Supporters of EuroNext point out that the market capitalisation of companies traded on the combined Paris, Amsterdam, and Brussels exchanges was as much as $2,383bn at the end of 1999. That put it just behind London on its own with £2,855bn and well ahead of Frankfurt which at £1,432bn is smaller than Paris on its own. The French and Dutch also have a far longer tradition of stockbroking than the Germans who are only just starting to embrace the idea of an equity culture.

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