The London Stock Exchange yesterday rejected an offer from Deutsche Borse, its bigger German rival, that valued it at about £1.35 billion sterling (€1.95 billion).
The offer, at 530p a share, represented a significant premium to the previous closing price of 430p. The approach is believed to have come over the weekend from Mr Werner Seifert, Deutsche Borse's chief executive, who has made little secret over the past year of his interest in acquiring the LSE - following a failed merger effort four years ago.
But in a short statement released yesterday, the LSE said the offer "undervalues the company and the substantial synergies that would be available from the combination of LSE with another major exchange group".
However, the LSE said it had agreed to hold talks with Deutsche Borse to see if a "significantly improved proposal" could be agreed.
Deutsche Borse said it would hold further talks to "demonstrate ... the full benefits of its proposal and its belief that such a proposal can be successfully implemented".
The move comes after a rise of 25 per cent in the LSE's shares in recent weeks on speculation that the German exchange was planning to make a bid. Yesterday, LSE shares surged more than 25 per cent to 540p.
Deutsche Borse shares shed 4 per cent to €42.75, with investors worried that the German exchange was overpaying for its rival.
In recent months, following talks with its biggest users, the LSE has made clear it does not believe a deal with any competing exchange is feasible as long as competition concerns are likely to be raised.
In addition, the LSE has told bankers it is concerned about the structure of Deutsche Borse, which incorporates a fully-owned clearing and settlement business.
This vertical structure has been a target of European securities regulators seeking to promote a more efficient cross-border market that reduces the cost to participants.
While a deal is viewed as likely to succeed, a challenge from market participants and other exchanges would be widely expected. - (Financial Times Service)
