London cancels market merger

The LSE's web site still extols the "lasting links" and "shared global vision" between Frankfurt and London

The planned merger between the London and Frankfurt stock exchanges has been called off, at least for now.

The board of the London Stock Exchange announces that it has decided to withdraw its merger plan with Deutsche Börse, in order to focus attention wholly on the hostile bid from OM Gruppen

London Stock Exchange

The London Stock Exchange (LSE) said it would withdraw the proposal, so that it could focus on fighting a hostile take-over bid from the owner of the Stockholm stock exchange, OM Gruppen.

Deutsche Börse said it regretted the decision, as the merger would have "marked an important step in the consolidation of European capital markets and would have enhanced shareholder value of both organisations".

In May, Frankfurt's Deutsche Börse and the London Stock Exchange had announced that they would merge to create the iX, or international exchange. The venture was to have a strategic alliance with the Nasdaq, the US-based market specialising in high-growth stocks.

A Nasdaq spokesman said the US market would "continue to work with both [Frankfurt and London] as we pursue a global platform".

Both in London and Frankfurt there had been stiff resistance from some shareholders, who fear that their respective market would be losing out in the deal.

Brian Mairs, spokesman for the Association of Private Client Investment Managers and Stockbrokers called the cancellation "the right decision".

"Over the past weeks, we saw the problems facing iX. Now what we have to do is to find out the best option for the investors, the exchange and the City", Mr Mairs said.

Focus on OM

The situation was further confused when Swedish technology firm OM Gruppen moved in with its proposal to take over the London Stock Exchange.

In a statement, the London exchange now argues that it would not be able to sort out all the unresolved issues in connection with the Frankfurt merger at the same time as defending itself against the take-over bid.

However, a spokesman for the London Stock Exchange told the BBC that the plans for a merger with Frankfurt could be back on the agenda once the Swedish bid was defeated.

Don Cruickshank, the LSE's chairman, had previously described the OM Gruppen proposal as "derisory" and its business case as "deeply flawed".

In Tuesday's statement, the LSE's supervisory board that shareholders and customers "would need to be satisfied that their businesses would not be damaged by a change of control of LSE."

"In addition, shareholders would need to see a full price to justify surrendering control of such a valuable business. It is quite clear that the OM offer fails totally on both of these counts."

The London Stock Exchange was demutualised earlier this year, and shareholders are due to attend the company's first annual general meeting this Thursday.

There have been suggestions that Mr Cruickshank might face a shareholders' revolt at that AGM, with an attempt made to oust him.

Anger at Frankfurt

The LSE's management was apparently angered by a statement from Frankfurt, issued on Monday, in which Deutsche Börse said it was keeping "all its strategic options open".

London traders were also upset by a statement suggesting that "as a result of the trading on an electronic platform, the physical presence on other markets, such as London ... no longer has any advantages to offer".

The iX proposal had envisaged high-growth and technology stocks to be traded in Frankfurt, while blue-chip shares would be listed in London.

Other bidders for the London Stock Exchange could now emerge, including the Euronext group linking the Paris and Amsterdam exchanges, and one of the US exchanges.