High price tempts Fidelity to sell Stock Exchange stake

Fidelity, once the LSE's largest shareholder, owning more than 10 per cent of the exchange, has been gradually selling down its position for the past year, during which time the share price has gone from around 450p to more than 1,000p, touching a high of 1,219p last month. Before rumours of Deutsche Börse's interest in the exchange emerged in December 2004, the stock was trading below 400p.

Deutsche Börse, which pulled out of the race for the LSE last year after pressure from its shareholders, said yesterday that it was now impatient to merge with its European rival Euronext. Meanwhile, it emerged that Euronext has been in merger talks with the LSE in recent weeks, and would now prefer a cross-Channel tie-up over a deal with its German rival.

In an interview with the German newspaper Handelsblatt yesterday, Reto Francioni, Deutsche Börse's chief executive, said he was ready for a "swift merger" with the Paris-based operator.

However, Euronext is believed to be unenthusiastic about the proposal, as Deutsche Börse has indicated it would want to have the headquarters of the combined operation in Frankfurt, and would also want to hold on to the Luxembourg-based exchange, Clearstream.

Euronext believes any merger should be conducted on a 50-50 basis, with Clearstream sold or floated off separately.

The Paris-based company is now believed to be far more attracted to a nil-premium merger with the LSE, creating a company with a combined market value of about £6bn.

The exchanges have come under pressure in recent months to consolidate as a means of boosting trading volumes and reducing costs.

Since Deutsche Börse made its bid for the LSE 16 months ago, the UK business has received approaches from Macquarie, the Australian investment bank, and Nasdaq, the US exchange, as well as Euronext. However, it has knocked back all approaches for being too low.

Euronext has a shareholder meeting next month, where it is expected to come under renewed pressure to find a resolution to the situation.

Shares in the LSE fell 0.8 per cent to 1,028p yesterday, giving the company a market value of about £2.6bn. Shares in Deutsche Börse fell more than 3 per cent in early trading in reaction to the chief executive's comments, but recovered to close up 0.8 per cent at €114.04 (£79.30). Shares in Euronext closed down 1.3 per cent at €68.30.