Saturday, July 30, 2005

Antitrust watchdog says takeover of London Stock Exchange would hurt competition

By Jane Wardell / AP Business Writer

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LONDON -- A takeover of the London Stock Exchange PLC by either Euronext NV or Deutsche Boerse AG would damage competition among clearing services, Britain's antitrust watchdog said Friday, warning that any bid would require significant changes for regulators to accept it.

The Competition Commission said an offer from either German stock exchange operator Deutsche Boerse or Euronext, which unites the stock exchanges in Amsterdam, Brussels, Lisbon and Paris, would "substantially lessen competition" in the trading of British equities.

The main sticking point identified by the commission was the exchange's clearing services, or matching shares with buyers.

"Either merger would make it more difficult for other exchanges to compete with the LSE in trading U.K. equities because of both bidders' ownership or control over the future provision of clearing services to the LSE," the commission said.

Euronext has a significant stake in the LSE's current clearing services provider, LCH.Clearnet, while Deutsche Boerse planned to introduce its own clearing services provider, Eurex Clearing, as LSE's provider.

However, the commission added that, overall, the removal of one of Europe's three largest bourses through a takeover would "not be expected to result in a substantial lessening of competition in the provision of on-exchange trading services" because of the competition provided by other exchanges in the United States and Europe.

British regulators began investigating a potential takeover of the LSE earlier this year after Euronext and Deutsche Boerse said they may make offers.

Deutsche Boerse abandoned its 1.4 billion pound ($2.46 billion) approach in March following a shareholder revolt, but did not withdraw its proposal from scrutiny in case shareholders requested a fresh bid.

Euronext has been awaiting the commission's decision before deciding whether to make a formal offer.

A merger with either would push the LSE into second place globally in terms of market capitalization and value of equity trading. It currently ranks fourth behind the New York Stock Exchange, the Nasdaq Stock Market and the Tokyo Stock Exchange.

The Competition Commission said it was concerned that Deutsche Boerse would introduce Eurex Clearing as LSE's provider and it could then become harder for rivals to access the Eurex service.

The commission said that measures to allay its concerns could include Deutsche Boerse selling or divesting its control of Eurex Clearing, or the LSE dropping Eurex's clearing services as part of a bid.

Similarly, it suggested that Euronext could divest control of its holding of LCH.Clearnet, remove operational control of the business, or make a commitment that it would allow competitors access to its clearing services. Euronext has a 41.5 percent stake in LCH.Clearnet, the LSE has a 50 percent stake and the remainder is owned by the open market.

The Competition Commission gave the three exchanges until Aug. 18 to submit "practical alternative remedies."

Euronext said it will work closely with the commission and other relevant market constituencies to address the issues raised. Deutsche Boerse welcomed the commission's findings and said it believed it was "in a favorable position with regard to potential remedies suggested by the commission."

The LSE has appeared ambivalent about the prospect of a takeover. LSE Chairman Chris Gibson-Smith told investors at the annual meeting earlier this month that the bourse was not up for sale as he talked up the exchange's growth prospects.

The exchange said Friday that its strong first-quarter results reinforced its confidence "in the exchange's growth prospects as an independent group."

"However, the board also continues to believe that a combination, on the right terms, with another major exchange could be in the best interests of shareholders and customers," it added.