Battle escalates over exchange union

Werner Seifert (left) with London Stock Exchange chairman Don Cruickshank

The row over the proposed union of the London and Frankfurt stock exchanges escalated on Friday when a second investment giant voiced disquiet over the deal.

UBS Warburg said on Friday it is "actively involved" in talks with the London Stock Exchange, and has more than doubled its holding in the LSE ahead of a shareholders' ballot on the deal on 14 September.

The Swiss-owned investment bank, which is based in the City, now owns more than 1% of LSE shares, if holdings by subsidiary companies are included.

We are actively involved in discussions on the detail of the merger. There is a feeling that more needs to be done

Spokesman for UBS Warburg

While UBS is believed to support the principle of the merger, which would create a single Anglo-German exchange named iX, the bank said it was uneasy over the small print.

"As a bank with a leading position in Europe, we felt it necessary to increase our shareholding in the LSE," a UBS spokesman told BBC News Online.

"We are actively involved in discussions on the detail of the merger. There is a feeling that more needs to be done."

Consultation tour

The LSE, which is undertaking a consultation tour, said it was unable to comment on shareholder issues during a formal offer period.

The news comes a week after Guinness Peat Group voiced opposition to the tie-up and revealed it owned almost 1% of LSE shares, and was "open minded" about buying more.

Guinness Peat Group is not thought to have further increased its holding since last week's announcement, which sent LSE shares up 8% to £23.

The investment company has instead focused on winning support for a campaign to force the exchange to pay a £10 special dividend to compensate shareholders for cash and property assets which would be included in the iX deal.

LSE undervalued

GPG's opposition to the merger has centred around the 50:50 ownership split that LSE and Germany's Deutsche Boerse would have in iX.

Sir Ron Brierley, the New Zealand corporate raider who controls GPG, believes these terms undervalue the LSE's contribution.

Other City figures have criticised the lack of a common German and British regulatory watchdog to ensure investor protection, and the imposition throughout iX of a German trading platform.

"There are question marks over the platform's reliability," said Brian Mairs, spokesman for the financial trade association Apcims. "And it was only four years ago that members of the stock exchange had to fork out £400,000 each to gear up for the LSE's current platform."

Frankfurt visit

Apcims on Friday sent four delegates to Frankfurt to assess German dealing technology, at the invitation of Werner Seifert, the chief executive of Deutsche Boerse who would have the same role at iX.

Apcims, which represents stockbrokers and fund managers working on private client accounts, has called for a delay to the 14 September meeting, to give shareholders more time to examine the merger plans in greater detail.

The merger requires the backing by holders of 75% of the LSE shares.

Members of Apcims control more than a third of LSE shares.

LSE shares, launched at £28 when the exchange was floated on 24 July, stood at £23.75 in mid-morning trading on Friday.