Euronext urged to drop LSE bid

EURONEXT, the pan-European stock exchange, faces strong pressure from the French government to abandon the takeover battle for the London Stock Exchange.

Shareholders and customers of the LSE hope that Paris-based Euronext will top the £1.35bn initial offer tabled last week by Germany's Deutsche Borse.

But such hopes could be dashed, with London left at the mercy of the Germans. An official at the French Finance Ministry, which acts as Euronext's main regulator, said he believed Euronext should link with exchanges in Madrid and Milan.

He argued that prospects in Spain and Italy were more attractive for Euronext than taking over the LSE.

The official, who declined to be named, explained: 'For Euronext, a partnership with Madrid and Milan would offer a business equivalent to a Frankfurt-London axis.'

Euronext owns the Liffe derivatives exchange in London and runs Paris, Amsterdam and Lisbon stock exchanges. Euronext chief executive Jean-Francois Theodore held talks with French finance minister Herve Gaymard last week. It is not known whether an alternative takeover was discussed. A Euronext spokesman said: 'We don't comment on speculation.'

But another French official said: 'Don't be surprised to hear an announcement soon of a closer alliance between Paris, Madrid and Milan.'

The threat of Euronext walking away would leave the Germans as sole bidder, resulting in a much lower takeover price.

Some observers consider that the many obstacles to a deal may mean the LSE is never be taken over. One leading City broker said: 'I would now put my money on there being no deal.'

Deutsche Borse bowed to shareholder pressure last Thursday, publishing details of its proposals, but stopping short of a formal bid. However, its plans and the suggested price of 530p were rejected by the LSE and met by stock exchange customers with a mixture of derision and fury.

At the heart of the German announcements were proposals for the back-office businesses, which it said would cut dealing costs. It would grant the London Clearing House, which ensures traders have cash and shares to complete deals, an extra year on its contract but would look for price cuts of 50%. LCH did not comment but it is thought chief executive David Hardy is enraged by the proposal.

Charlotte Black of stockbroker Brewin Dolphin said: 'We would need an awful lot more assurances from Deutsche Borse and something concrete. And we are looking for something to come out from Euronext with whom we have much more in common.'