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Wednesday, 30 August, 2000, 17:20 GMT 18:20 UK
Stock market battle: The Players
London Stock Exchange takeover graphic
OM Gruppen's bid to take over the London Stock Exchange introduces a new language, and a new range of ownership possibilities, to looking at the exchange's future.

The LSE and its German equivalent Deutsche Börse in May proposed a simple 50:50 merger to form a unified Anglo-German and potentially pan-European exchange named iX. The plan, agreed by the exchange's boards, was to have been voted on by shareholders on 14 September.

But the emergence of the OM bid introduces the prospect of a hostile take-over - a sale approved by LSE shareholders even against the recommendations of the exchange's board.

The world's largest exchanges ($bn)
New York (NYSE): 11,438
Nasdaq: 5,205
Tokyo: 4,455
London: 2,855
Paris: 1,503
Deutsche Börse: 1,432

(Market capitalisation, 12/99)

And with it comes the possibility of a take-over battle, where different bidders compete for shareholders' votes.

The exchange's shareholders currently face the alternative of backing the merger with Deutsche Börse, and gaining 50% of iX, or the OM deal, offering £27 per LSE share.

But observers believe that Deutsche Börse may escalate its merger offer into a take-over bid, and consider it possible that other exchanges, notably Nasdaq or Euronext, might enter the fray.

OM might also improve its bid which, in paying only £7 in cash and the remaining £20 in OM shares, is thought unlikely to win the backing of LSE shareholders.

London Stock Exchange

The LSE was launched in 1802 to formalise trading arrangements between brokers and dealers, expanding by 1973 to subsume regional exchanges run in cities including Bristol, Glasgow and Manchester.

How the proposed exchanges compare ($ bn)
iX: 4,288
London/Stockholm: 3,229
Euronext: 2,382

(Combined market capitalisation, 12/99)

But the battle to win the hand of the LSE stems from its position as Europe's largest stock exchange, and the world's fourth biggest.

As such it is seen as central to efforts, prompted by globalisation and the telecommunications boom, to form a pan-European stock exchange, which would list on one market shares in firms based across the continent.

The LSE, which was itself listed in July, is owned by more than 520 shareholders, mainly banks, fund managers, brokers and private individuals. The exchange had less than 300 shareholders, mainly banks, at the time of demutualisation.

Deutsche Börse

Deutsche Börse, while barely half the size of the LSE in terms of the value of companies listed, has been able to propose a 50:50 merger on the back of its strength in other markets.

Unlike the London exchange, Deutsche Börse boasts its own derivatives market, Eurex - the world's biggest. It also owns the Xetra trading technology and a share in a clearing house, and operates the European Energy Exchange.

Deutsche Börse, which dates back to 1585, is owned 80% by foreign and German banks, with brokers owning 10% and the country's six regional exchanges holding the balance.

The exchange is currently deciding whether to pursue the iX proposal, or launch its own "friendly" take-over, i.e. a deal approved by the LSE's board, and outbid OM to ensure the approval of shareholders too.

Madrid and Milan exchanges, which have agreed to join iX, could be invited to join a take-over bid, Deutsche Börse hinted on Wednesday.

OM Gruppen

In its 15 year history, OM Gruppen has grown from a pioneer in electronic trading to a company with a valuation of £2.6 billion - three times the value of the LSE.

Olaf Stenhammar, founder of OM Gruppen
Olaf Stenhammar, founder of OM Gruppen
Its 20-strong list of major clients include the Australian and Milan stock markets and the Chicago Board of Trade Clearing Corporation - the world's largest independent clearing house.

In 1998 OM took over the Stockholm stock exchange, ranked 15 in the world, but the firm has yet to gain ownership of a premier exchange.

OM's offer documents say the firm can create a pan-European exchange from the LSE by using its software and marketing skills to attract patronage from throughout Europe.

The firm is owned by a range of institutional and private shareholders, including its founder Olof Stenhammar, who controls more than a third of the equity.

Nasdaq

While gaining a reputation for its success in attracting new economy stocks, Nasdaq's history dates back to 1961 when the US Congress ordered a study which identified fragmentation and inefficiency among the country's exchanges.

Frank Zarb, Nasdaq's chief executive
Frank Zarb: Wants to get Nasdaq into Europe
The solution proposed was the first electronic stock market, launched in 1971 as Nasdaq, which by 1994 had surpassed the New York Stock Exchange in terms of trading volume, although it is currently only half the size.

Nasdaq has since it inception made no secret of its plans for global expansion, and under the iX plans, is to help run the exchange's high-tech market.

However, comments by chief executive Frank Zarb on Wednesday left the way open for involvement in other options.

While stating his "respect" for Deutsche Börse and the LSE, Mr Zarb declined to give them a monopoly on Nasdaq support. "We are going to be in Europe, hopefully with multiple partners," he said.

Euronext

While Frankfurt and London talked for two years about a tie-up, markets in three other countries got together in March and signed and sealed an agreement on the Euronext exchange.

Euronext, formed from a merger of the Amsterdam and Brussels exchanges with Paris, will begin trading in September 2001. It will then rank a little behind the LSE in the world exchange league, barring a major change in stock values.

While heads of Euronext only last week ruled out a merger with iX, the emergence of the OM bid has opened speculation that they may join Deutsche Börse to bid for the LSE, or even launch a bid of their own.

Deutsche Börse board member Ralf Breuer on Wednesday said he would be "more than happy" if Euronext joined iX, and claimed he was "always in favour of one single [European] marketplace".

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