World

The Wedding Is Off

By CBSNews.com staff CBSNews.com staff

September 12, 2000 / 2:33 PM EDT / CBS

The London Stock Exchange is pulling out of its merger with Germany's Deutsche Boerse, a deal that would have marked Europe's first powerful counterweight to Wall Street.

The London exchange said the bid was withdrawn so it could focus on defeating a hostile bid from Sweden's OM Gruppen. A day earlier, Deutsche Boerse had delayed a vote on the troubled plan.

Deutsche Boerse "regrets that the planned merger won't be pursued," spokesman Walter Allwicher said. Deutsche Boerse chairman Werner Seifert said the German exchange will "examine alternatives," according to Allwicher, who declined to comment further.

London Stock Exchange chairman Don Cruickshank says the exchange remains committed to cross-border consolidation of European stock exchanges to boost liquidity and bring down transaction costs.

"When the OM offer has been seen off, the board in full consultation with shareholders and customers will review the means by which London's pre-eminent role in European equities trading can best be promoted," says Cruickshank.

Cruickshank adds that he will open up the debate on cross-border consolidation of stock exchanges at Thursday's annual general meeting of the London market.

The LSE chairman says he is not currently in merger talks with any other stock exchange.

The London-German merger, to be called iX, was envisioned as a precursor to an alliance with the Nasdaq stock market, the electronic U.S. exchange that hopes to start a global system of round-the-clock trading.

The proposed merger called for blue chip shares to be traded in London, while shares in high-tech firms would be traded in Frankfurt. The iX headquarters were to be in London.

The LSE expressed confidence it would fend off the hostile bid and said it would then weigh its options, including the German one.

The merger had come under fire well before OM made its surprise bid last month. OM said the LSE's withdrawal from the deal Tuesday confirmed its view that the Anglo-German deal was "flawed," adding it would now focus on talks with LSE shareholders.

London brokerages, big and small, attacked the proposed new combined stock exchange, while smaller UK companies feared they would be left out in the cold.

UK market authorities also questioned the regulatory framework for the merged exchange and a report commissioned by investment bank Merrill Lynch found the proposal to be "almost unworkable."

"It's like a lot of these things, what can look pretty good on the back of an envelope can look very different when subject to real scrutiny," commented one senior dealer.

Britain's private client brokerage association, APCIMS, said the LSE had made the "right decision" by dropping its iX merger plan.

Analysts say other bidders may stake their claim to the 200-year-old London exchange, which many feel could hold the key to the creation of a cross-border European stock market.

Other bidders could includ Euronext, the proposed merger of Paris, Amsterdam and Brussels bourses; Nasdaq, which had been a partner to the iX proposal; and Deutsche Boerse itself, launching an independent bid for the London market.

OM's chairman Olof Stenhammar had said earlier the proposed London-Frankfurt merger reflected "an outdated concept of merging two nationally based operations with limited regard to the technological and commercial changes in global equity markets."

OM, founded in 1985, supplies technology to stock exchanges, banks and brokers in more than 20 countries. It had launched its $1.1 billion bid for the LSE last month.

It started the first for-profit, privately owned electronic derivatives exchange. It eventually integrated that market with the Stockholm stock exchange, which it acquired in 1998.

The technology-heavy exchange has grown into one of Europe's most successful, led by Ericsson, the world's third-largest cellular phone maker.