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LSE on the block as TMX bid fails

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The London Stock Exchange became a takeover target overnight on Wednesday when it pulled out of its $3.5 billion merger with Canada's TMX Group (X-T), analysts said.

Exchange analysts said on Wednesday the British exchange was in a precarious position following its decision to pull back from the TMX deal less than 24 hours before shareholders voted on the plan.

The LSE said in a statement late on Wednesday it had not secured enough support from TMX investors in early proxy voting, and the merger would not proceed.

"Investors have bought into LSE stock recently in the belief the TMX bid will fail and the LSE will end up on the block," said Simon Maughan, an analyst at broker MF Global.

Maughan said the shift in the LSE shareholder base could affect any subsequent decision on a possible sale of the British exchange.

"I suspect there are more LSE shareholders willing to sell now," he said.

Arnaud Giblat, a director at UBS, said there was an obvious candidate waiting in the wings for the London exchange: "Nasdaq made bids for TMX and NYSE, and it is reportedly looking at LCH. Nasdaq seems to want to bulk up and the LSE fits the bill."

Nasdaq OMX (NDAQ-Q) twice tried and failed to buy the LSE in 2006-07, and the U.S. group has been watching and waiting since it pulled in May its bid to acquire NYSE Euronext (NYX-N) - a challenge to NYSE's deal with Deutsche Boerse.

Nasdaq OMX said two weeks ago it had made a bid to buy a minority stake in LCH.Clearnet, Europe's largest clearing house, in a move to strengthen its foothold in the region.

Giblat said: "Given the LSE has been telling shareholders it needs a transatlantic deal, they may find it hard to defend their position if Nasdaq offers a premium."

Maughan added: "Nasdaq is the prime candidate. There is bad blood between the exchanges, and the Nasdaq management are aggressive. I don't think you have to look far beyond Nasdaq as a bidder for the LSE."

TMX shareholders were to choose on Thursday between the LSE's bid and a rival offer from the Maple Group, which had offered $3.7 billion in the hope of convincing TMX investors to keep the exchange in Canadian hands.

The LSE withdrawal leaves Maple free to forge ahead with its plan uncontested, but the Maple bid, which is backed by 13 Canadian financial firms, will likely face anti-trust scrutiny from Canadian regulators.

 

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