iX deal in disarray as OM Gruppen launches £822m hostile bid for LSE

Stock Exchange: Rival offer from Sweden raises spectre of a lengthy bidding war for the London bourse

Plans by the London and Frankfurt stock exchanges for a £1.4bn merger were yesterday thrown into disarray after OM Gruppen, owner of the Swedish stock market, launched a hostile £821.7m cash and shares bid for the London Stock Exchange.

Plans by the London and Frankfurt stock exchanges for a £1.4bn merger were yesterday thrown into disarray after OM Gruppen, owner of the Swedish stock market, launched a hostile £821.7m cash and shares bid for the London Stock Exchange.

Don Cruickshank, the LSE chairman, immediately dismissed the offer - which would give the exchange's 298 members £208m in cash and an 18.5 per cent stake in the enlarged OM group - as "derisory".

However, within hours of the bid, Mr Cruickshank and Rolf Breuer, his opposite number at Deutsche Börse had bowed to the inevitable and agreed that shareholder meetings planned for 14 September to vote on the iX merger plans would be postponed.

OM, a £2.6bn quoted securities markets group which operates the Stockholm stock market, is offering 0.65 new shares and £7 in cash for each LSE share held. The offer values each LSE share at £27.19, a 15.7 per cent premium to the closing price last Friday. LSE shares, which are traded on a limited match-bargain basis by Cazenove, the broker, jumped nearly 15 per cent to £27 yesterday. OM shares rose 8 Swedish kronor to Skr433.

Yesterday's move raised the prospect of a bidding war for the LSE. Liffe, the London derivatives exchange, said yesterday it was "watching with interest". Bankers said they expectedNasdaq, the US exchange, and Euronext, the Franco-Dutch-Belgian alliance, which have seen previous merger approaches rebuffed by the LSE, to consider re-entering the fray.

Rolf Breuer has already raised the prospect of dropping plans for a merger of equals in favour of a straightforward takeover of London by Frankfurt on terms which would offer a clear "change of control" premium to LSE members.

Said a seasoned markets insider yesterday: "This has opened the game up.... No more talk of a phoney merger of equals. It has been confirmed that the [LSE] is going to be taken over. There is at least some honour in that."

Olof Stenhammar, the OM chairman who founded the group in 1984, said his decision to go hostile had been prompted by the widespread dissatisfaction in the City with the iX merger terms. "What really puzzled me was how London, the dominant stock market in the world, can agree to a 50:50 deal with Frankfurt," he said.

Mr Stenhammar, a formernavy commander, said marrying OM's proven technology and management skills with the LSE brand would restore London's position as the "natural place for trading IPOs and blue chips".

In response, LSE insiders were quick to point out that Mr Stenhammar's proposals would mean the LSE becoming a mere branch office of a Swedish company, headquartered in Stockholm. OM is proposing a secondary listing of its shares in London and would offer one or two positions on its nine-strong management board to representatives from the UK.

The decision to go hostile follows an abortive meeting last Thursday with Gavin Casey, the LSE chief executive, at which Mr Stenhammar urged him to drop the planned iX merger and consider the OM proposal. The meeting is understood to have lasted less than half an hour.

In contrast to iX, whose proposals would mean UK brokers having to switch to German exchange technology and regulation being split between the UK and Germany, OM promises to stagger the technology switch and retain UK regulation for the entire market. But the cost savings, £30m a year after five years, are more modest than the £85m proposed by iX.

Sir Ron Brierley, the New Zealand corporate raider whose Guinness Peat has been pressing for a £10 a share sweetener to the iX deal rejected the OM bid as "unappealing".

However, iX merger sceptics welcomed the fact that the bid had forced the LSE to concede to widespread demands for a delay to allow more time to address brokers' concerns about a range of issues, including settlement and regulation.

Ed Warner, chief executive of Old Mutual Securities, said: "All the dissident shareholders have been asking for is not to throw iX out on its ear but to have a chance to consider the proposals more fully. If at the end of the day we end up with an alternative iX proposal, that is fine." He said that the OM bid was a "sighting shot".

The OM bid already faces the hostility of the big investment banks, led by the so-called MGM trio of Merrill Lynch, Goldman Sachs and Morgan Stanley Dean Witter who have been pushing the iX deal as a way of guaranteeing their strong position in cross-border equity trade.

Both bids would need 75 per cent shareholder approval to succeed.

Mr Stenhammar said he was prepared for a bid battle: "We understood the process we were starting when we tabled the bid. We are prepared for a competitive situation."