Outlook: A potentially fatal blow for Deutsche's LSE bid
Saturday 05 February 2005
Admittedly, the open letter published yesterday by Callum McCarthy, chairman of the FSA, was a carefully worded affair which could be given an entirely innocent interpretation. But this may be more down to the need under European law not to discriminate against bidders on grounds of nationality than anything else. Don't forget, Mr McCarthy says right at the start of his letter, that we allowed Santander's bid for Abbey without objection, so don't you go accusing us of being closed to foreign acquisition. Me thinks he protests too much and there's no mistaking the underlying tone of his letter.
Basically what he's worried about is the regulatory regime for British quoted companies shifting offshore to other jurisdictions. Mr Seifert has promised that this will not occur, but as Mr McCarthy points out, it is impossible to be sure that in the long term the new company would chose to maintain its activities here.
Rather they might be provided as a "passported" service from elsewhere, presumably Frankfurt, which in turn could mean a significant change in the application of UK listing rules. The attractiveness of London as a financial centre depends on a system of corporate governance and regulation which is of high standard, but also proportionate, adaptable and attuned to the requirements of users. There is no knowing what might happen to it if it were shifted off to Frankfurt. This might particularly affect AIM, which has built its success in attracting small and overseas companies to London's capital markets on the back of light touch, low cost regulation.
Deutsche was making light of Mr McCarthy's remarks yesterday, saying that all these concerns were being addressed in its proposals. But it seems to me that the intervention turns the already high chances of a Competition Commission investigation into a racing certainty. Mr McCarthy suggests that the takeover would perhaps be acceptable if the controlling company had its primary listing and domicile here in the UK, but the chances of the burghers of Frankfurt agreeing to that are about zero, this for the very same reasons as Mr McCarthy is concerned about a change of control at the LSE.
If Euronext's Jean-Claude Theodore is prepared to be more amenable, he's not yet said, but on the face of it, the FSA's concerns are as big a stumbling block for him as for Mr Seifert.
The LSE's share price will collapse if it turns out that the company is essentially bid proof, but the national interest, and that of its users and quoted companies, are probably best served by the market remaining independent.
John Thain, chief executive of the New York Stock Exchange, was recently forced to deny that proposals to open for business a couple of hours earlier in the day were in response to the growing number of European companies that are trying to cancel their US listings. In fact, he said, it was aimed much more at the US domestic market, so that more instruments could be traded at greater convenience to the NYSE's users.
His point was that local companies and investors are best served by local exchanges. That shouldn't be any barrier to cross border trading, but it does mean that if you want to buy stock in General Motors, you are likely to be best served dealing through New York, not London or Frankfurt. The same is true in reverse. Nobody in their right mind would buy shares in British Telecom through New York or Siemens through London. The quest for a single European stock market is ill founded.
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