Stock Exchange merger 'must be probed'

ANY successful bid for the London Stock Exchange (LSE) should be referred to the competition authorities, ex-chairman Don Cruickshank said today. That could add months to the £1.3bn takeover battle between Deutsche Borse and Euronext. Cruickshank led the first failed merger talks between the LSE and the B?rse in 2000.

Writing in the Financial Times, he said: 'The Office of Fair Trading would be negligent if it were not to refer this case to Brussels. This is a seminal moment in the creation of the right structure for Europe's equity capital markets, an ambition high on the agenda of everyone who wants a better economic performance from the European Union.'

He called on the LSE board to 'give the greatest weight possible to the interests of [listed] companies and choose the bidder most heavily committed to lowering costs for all European groups'.

Cruickshank said there were arguments for preserving the LSE's independence. However, he reckoned the best thing was to exploit the bidders' enthusiasm and force them to change their structures and tackle the inefficiencies these create.

In the case of Deutsche Borse, he said, it should have to dismantle its ownership of settlement and clearing systems, the so-called 'silo structure'. For Paris-based Euronext, which is already withdrawing from ownership of clearing and settlement, a promise of good behaviour to the competition authorities would not suffice. Ownership must change, he said.

{1} In Germany the prospect of a Franfurt-London merger is causing deep division. The mood was summed by up by a headline in broadsheet newspaper Die Welt: 'Doubts about Deutsche Borse venture growing'.

The Frankfurter Rundschau newspaper, headquartered in Germany's financial capital, said: 'There is a growing resistance to the deal and concern, not least in Frankfurt, about where this will leave the city if it went ahead.'

While opposition from within the ranks of Deutsche Borse's own shareholders to a bid for the London market is also rising, there are signs of dissent among Germany's power brokers about the potential deal. Officially the German government supports the bid, but there is a sense of disquiet in political circles that the move could jeopardise hundreds of jobs in Frankfurt.

There is also rising concern that Deutsche Borse chief executive Werner Seifert may make too many concessions to win a bid recommendation from the London Exchange. Deutsche Borse last month had its 530p-a-share indicative offer for London rejected and now faces a battle with Paris-based Euronext to secure a deal to forge the world's largest stock market behind New York.

Despite growing dissent from Deutsche Borse shareholders demanding a vote on the proposed move, Seifert's hand has been strengthened by a board recommendation of his strategy. He also has overall approval in German business circles, but his strategy is not without its critics.

{2} Seifert has suggested moving the cash equities and derivatives business and its management to Britain, a move that would further cement London's lead among the European financial centres and potentially cost jobs in Frankfurt.

The Bundesbank officially supports the bid but that has not stopped some dissenting voices. Amid fears that more than 1,000 jobs could be lost if Deutsche Borse moves large elements of its operations to London, Bundesbank board member Hans Reckers remains concerned about Frankfurt's place in the financial world. 'The question must be asked, in such a situation, just how Frankfurt's competitive strength can be secured,' he said.

Hans Bulmer, a writer on financial affairs for Austria Today, Germany, said: 'While big business is broadly in favour of the move there remains deep-rooted scepticism among shareholders. Germans like to move cautiously and this is a big project moving at a rapid pace. Some think that it might be a move too far, too fast.'