It’s all about regrets. It would appear that the three main players in the battle over the fate of the London Stock Exchange have each made a mistake, and had they not done so, things would be very different.
Clara Furse, the highly respected, sometimes referred to as formidable, chief executive of the London Stock Exchange, let Liffe slip through her fingers. At least, she ceded victory to Euronext, and the Paris based company which owns stock exchanges across Europe added the London derivate trading and futures market to its portfolio. But many felt this left the LSE weak, and perhaps if Ms Furse had pushed the boat out, and outbid its Paris rival for Liffe, the string of suitors who have made their offers for the LSE over the last year or so would never have been so bold.
Then, this weekend, the Sunday Times revealed that ICAP, which operates in similar areas as Liffe, and the LSE have held talks over a possible merger. ICAP is into the wholesale market for OTC derivatives, fixed income securities, money market products, foreign exchange, energy, credit and equity derivatives. It is the world’s largest voice and electronic interdealer broker with a daily average transaction volume in excess of $1 trillion.
An LSE ICAP merger would help plug the gap that might have been filed if the London Stock Exchange had won control of Liffe.
But there’s a fly in the ointment. ICAP believes the LSE share price is too high, much too high, and according to press reports this morning, the discussions between ICAP and LSE have “been discontinued.”
For ICAP’s boss, Michael Spencer, the current share price of the LSE must represent a massive psychological hurdle. Until the beginning of this year he held a stake in London’s main stock market, but he sold out, at 620p a share, netting himself a nice profit. But, even while Mr Spencer was patting himself on the back, regrets must have started. Because soon after he sold his stake, the LSE share price rocketed so that today shares are changing hands at twice that price.
Then there’s NASDAQ. Six months ago it made a formal offer for the LSE and its bid was turned down. But since then it has been acquiring shares in its would be partner. It now holds a 25 percent slug of the LSE, but has had to wait six months from when its offer was turned down, before it could bid again. That time is now almost up, and many expect NASDAQ to be bidding again very soon.
But, once again, the share price could prove to be the hurdle. If the NASDAQ does bid again, it has to match the £12.43 it paid for its last chunk of shares it bought. Either that or it has to wait another six months, after which time it is free to bid whatever it likes.
And maybe NASDQ paid over the odds. This morning, LSE shares were trading at exactly £12.43, suggesting the city feels that the current price is the absolute maximum anyone would pay. Maybe then NASDAQ too regrets paying quite so much.
But the fate of the LSE impacts on more than just its shareholders. London’s main stock exchange is a key pillar to the city’s position on the world stage. For our money, a merger between NASDAQ, for so long the home of the world’s most dynamic companies, and the LSE which had been slowly winning the NASDAQ’s crown as the world’s capital for IPOS, will make a formidable company. British authorities have said that steps will be taken to ensure Sarbanes Oxley regulations can not be imported to the UK via a US based buy out of the LSE, and with the removal of that hurdle, it seems to us that a NASDAQ/ LSE combo will help cement London’s place in the global economy.
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