London Stock Exchange, Europe's third-largest exchange by market value, said it received a £1.35 billion ($3.66 billion) takeover approach from Deutsche Boerse, the second attempt by the operator of the Frankfurt stock exchange to merge with its British competitor.
Deutsche Boerse proposed to pay 530 pence a share in cash
for LSE, 23 per cent more than the close on December 10.
LSE rejected the offer and agreed to hold talks with Deutsche Boerse to "ascertain whether a significantly improved proposal" could be agreed upon, the company said yesterday.
European exchanges including Deutsche Boerse, LSE and Euronext, the No 2 bourse in Europe, are under pressure from investment banking clients to lower fees as stock trading slows.
LSE shares had risen 29 per cent this year before yesterday, on speculation the company would be bought after its earnings trailed competitors.
"There may be counterbids, though the price Deutsche Boerse offered is so high that the chances Euronext would come in are smaller," said Andreas Thomae, a fund manager at Munich-based Activest. "Deutsche Boerse is offering a hefty price."
Shares of LSE rose 86p, or 20 per cent, to 516p. Deutsche Boerse shares fell €1.03, or 2.3 per cent, to €43.5 giving the company a market value of €4.86 billion ($NZ9.1 billion).
A 2000 merger plan between LSE and Deutsche Boerse failed amid concern about regulatory hurdles.
LSE was the target of a hostile bid from OM Gruppen, the operator of the Stockholm stock exchange the same year.
The London bourse also held unsuccessful merger talks with the Nasdaq Market in 2002.
The German exchange, which sold shares to the public in an initial stock offering in 2001, last month predicted that earnings for next year would would rise to about €530 million from at least €450 million this year.
- BLOOMBERG
