Euronext's potent pitch for LSE

PARIS - Euronext squared up to Deutsche Boerse in their US$2.5 billion ($3.55 billion) battle for the London Stock Exchange yesterday. Euronext claimed its planned cash bid would wring twice as many benefits as that of its German rival.

The winner would become the world's second-biggest stock market and capture pole position to compete for listings with the global leader, the New York Stock Exchange.

Euronext did not say how much it would pay, but promised investors annual pretax cost and revenue gains of around 203 million ($369 million), enticed users with fee cuts and spoke of a primary listing in London to reassure UK regulators.

The savings target "seems extremely aggressive and probably implies a pure and simple disappearance of London's IT systems", said Stephane Nieres-Tavernier, an analyst at CDC Ixis Midcaps in Paris.

"All in all, this offer does not look necessarily better for LSE shareholders at this stage, notably in terms of fee cuts."

Euronext shares hit a record and closed up 5.4 per cent at 25.55 on hopes that any deal would not be as expensive as initially feared, while the LSE rose 1.2 per cent to 572 pence.

That was well below a high of 600p reached in December but above Boerse's proposal of 530p per share in cash. Deutsche Boerse stock rose 1.4 per cent to 49.56.

Euronext plans to spend the next two to three weeks meeting its shareholders as well as LSE investors and regulators, sources familiar with the situation said.

The Paris-based bourse hopes to convince them of the merits of its business proposals and to gauge their reactions while competition authorities continue to study its proposal.

It is extremely unlikely to attach a value to its offer before regulatory approval, unless prompted into it by Deutsche Boerse, the sources added.

Euronext said its business model was similar to the LSE's in that neither exchange owns its own clearing and settlement houses and both already use Euroclear-CrestCo for settlement and LCH.Clearnet for clearing.

Euronext estimated it could cut annual costs by 152 million in the second year after the merger's completion, and add 51 million to annual revenue in the third year.

Most of the savings would come from moving to a single-share trading platform within two years.

There would also be savings from closing the office of Euronext's UK derivative exchange LIFFE and moving staff to the LSE building. A third of Euronext's headcount and 41 per cent of revenue were already centred in London.

- REUTERS