A British watchdog has referred bids for the London Stock Exchange (LSE), including that of Germany's Deutsche Börse, to Britain's Competition Commission, delaying a possible takeover by months.
A ruling on LSE takeover bids is expected by September
Britain's Office of Fair Trading (OFT) said it had referred the proposals of Deutsche Börse, operator of the Frankfurt stock exchange, and pan-European exchange Euronext to the Commission, which was expected to report on the matter by Sept. 12.
The price of shares in LSE fell by 5.27 percent to 449 pence (6.5 euros, $8.44) in immediate response to the referral. LSE shares later stood at 452 pence in late afternoon trading, while Deutsche Börse fell by 0.72 percent to 59.14 euros and Euronext tumbled 2.15 percent to 27.30 euros.
"The OFT today referred to the Competition Commission the anticipated acquisitions of the London Stock Exchange by Deutsche Börse and by Euronext respectively," the watchdog said in a statement following a two-month review.
Merger harming competition?
OFT chairman John Vickers said the proposed bids for the LSE came at a time of emerging competition in equities trading between the LSE, Deutsche Börse and Euronext.
"Although such competition has so far been episodic, it needs to be investigated whether either merger would lessen future competition in equities trading in the UK," Vickers added. "The Competition Commission will also want to consider the effects of the mergers on competition in clearing services, particularly with the Deutsche Börse bid."
The Commission must complete its inquiry within 24 weeks, although it can apply for an eight-week extension should unforeseen complications arise. Any future formal bids for the LSE would not be allowed to proceed before the Commission ruled on the competition issues outlined by the OFT.
Börse keeps options open
Deutsche Börse made an offer at the end of January for 530 pence per share or just under two billion euros for the LSE. However, it withdrew the proposal on March 6 in the face of fierce resistance from London and stiff pressure from its own shareholders.
A trader at the Frankfurt stock exchange
Critics fear that a tie-up with Frankfurt, which has its clearing and settlement operations under one roof, would have led to higher prices for LSE users in trading, clearing and settlement.
The German exchange has reserved the right to make a renewed offer should Paris-based Euronext turn an informal offer into a formal bid.
Euronext, operator of the exchanges in Paris, Amsterdam, Brussels and Lisbon, meanwhile sees synergies worth 203 million euros from a merger.
That amount was twice that of its German rival Deutsche Börse, which predicted synergies of 100 million euros from 2008 if it won the battle to acquire the LSE.
LSE open for discussions
Responding to the OFT's announcement, the LSE said it was willing to continue discussions with potential bidders "about the possibility of an offer that fully values the London Stock Exchange and is capable of being recommended."
It added in a statement: "The board of the London Stock Exchange believes in the company's strong growth prospects as the largest equity market in Europe, but maintains that stock exchange consolidation, on the right terms, could be in the best interests of customers and shareholders."
Euronext meanwhile said that it would "work closely" with the Commission and claimed that its takeover proposal would work to the advantage of LSE customers and shareholders.
"Euronext is convinced that it is the natural partner for London Stock Exchange, and that a combination of Euronext and LSE would benefit users and create significant value for shareholders in both companies," the company added.
Euronext, registered in The Netherlands, has meanwhile said that the LSE would remain a British exchange regulated solely by the British regulatory body, the Financial Services Authority, if the two companies did a deal.