London rejects German offer

The London Stock Exchange rejected a 530p a share offer from Deutsche Boerse yesterday but left the door open to a higher bid from the Frankfurt group or Euronext, its Paris rival.

In making the conditional takeover offer, Deutsche Boerse's chief executive, Werner Seifert, pledged that a merged group would become the first global stock exchange with the power to challenge American dominance in world capital markets.

The German group's bid, however, depends on a recommendation from the London exchange's board, which yesterday seemed as far away as ever.

The exchange's statement after receiving news of Deutsche's bid fell short of an acceptance but hinted that more money would do the trick. "The LSE is willing to continue to hold discussions with Deutsche Boerse and Euronext about the possibility of a significantly improved offer," it said.

Euronext said it would make a submission to the Office of Fair Trading "imminently" about its plans to bid, putting its offer on the same regulatory timetable as far as competition issues are concerned as the German proposals.

Deutsche Boerse's publication of its plans drew a positive response from its shareholders, who had been concerned about the lack of information.

Richard Lacaille, of State Street Global Advisers, which owns 1.6 per cent of Deutsche Boerse and 2 per cent of the London exchange, said: "It is encouraging that we have got more information about their new revenue synergies and cost cuts. I don't think they have damaged themselves in any way by introducing this information to the public domain."

Seifert said the deal would produce 100 million($264 million) of extra pre-tax profits each year from about 25 million of extra revenues through new business opportunities and 75 million from reduced costs.

Seifert said yesterday that he expected that with more due diligence those cost savings were likely to rise.

The document from Deutsche Boerse also tried to allay fears that a merger would fall foul of competition regulators worried about Deutsche Boerse's domination of the post-share trading market in clearing and settlement.

Seifert said Deutsche Boerse would continue with the long-term arrangement for the London Stock Exchange's clearing and settlement to be handled by CrestCo while a new contract would be offered to LCH. Clearnet, which provides the trade guarantee function for the exchange.

However, in return for a one-year contract extension, Deutsche Boerse expects LCH to reduce its clearing guarantee price by 50 per cent to benefit exchange customers. Other fee reductions would come from a cut in trading costs of 10 per cent, with prices capped for at least five years with a guarantee that trading fees would never exceed present levels.

Seifert said the deal would be earnings-enhancing in its first full financial year, with a return on investment of 8 per cent.

He said European companies listed in London and Frankfurt would compete more effectively with American rivals, thanks to their lower costs of capital.

- INDEPENDENT