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Sweden: Offer For London Exchange Upsets Merger Plans

A Swedish company's unexpected -- and unwanted -- offer to buy out the London Stock Exchange for over $1 billion has thrown plans for the further integration of Europe's financial markets into disarray. RFE/RL correspondent Breffni O'Rourke reports.

Prague, 31 August 2000 (RFE/RL) -- The offer of Sweden's OM company to buy the London Stock Exchange, or LSE, came like a lightning bolt out of a clear blue northern sky. OM, which operates the Stockholm Stock Exchange, is little known outside of financial circles, and its formal bid of almost $1.2 billion this week for the biggest bourse in Europe sparked widespread incredulity.

The offer was immediately rejected by the LSE. A spokeswoman for the London exchange told RFE/RL that the bid simply does not fit London's strategic planning, and also would not provide the LSE's big corporate shareholders with good value.

But it's not as easy as that. The move made from Europe's northern periphery -- even if remains unsuccessful -- has already complicated the prospects for financial integration across the European heartland.

That's because it has forced a delay in a crucial vote set for September 14 among LSE's shareholders on whether to go ahead with a planned merger with continental Europe's biggest stock exchange, the Deutsche Boerse in Frankfurt. The merger would produce a combined entity called IX, which would have a strong presence both inside and outside the 11-nation zone of the European Union's common currency, the euro.

IX would represent a major integration of European stock exchanges but, even so, it is still not certain of approval from cautious LSE shareholders. The Swedish plan and the alternative vision it offers are now complicating the picture.

An OM representative in London, who preferred to remain unnamed, lost no time in criticizing the London-Frankfurt link. He told our correspondent that there are what he called "fundamental flaws" in the IX merger, and that OM is offering a better and clearer alternative. He spoke about the divisive effect for the market of IX's plan to split its various services between London and Frankfurt, and the difficulty of operating in two different national regulatory environments.

The Swedes apparently do not even consider pan-European integration to be relevant, saying that any merger between the Stockholm and London bourses is not the issue. Rather, they say, the issue is the re-invigoration of the mighty LSE through new OM technology, which would produce new efficiencies and thus attract more business from everywhere. In other words, they believe an efficient, stand-alone London is a better proposition than a merger of Europe's two biggest stock exchanges. In Frankfurt, the Deutsche Boerse acted quickly to counter just such opinions. Chairman Werner Seifert defended the merger as the "right concept" for everybody, including the financial markets themselves.

But there are now seeds of doubt about the London-Frankfurt among a wide spectrum of bankers. Robin Marshall, a senior researcher at Chase Manhattan Bank in London, says:

"One question overall is whether the process of integration, if you like [to call it that], of the European economy automatically means more integration of stock markets, and if so, the nature of the integration."

Marshall sees nothing inevitable about the march towards a pan-European financial system. He notes that the Swedish offer does represent an impulse toward integration, but in global terms rather than strictly European terms. He notes that, for instance, neither Sweden nor Britain are in the eurozone. And he says that one currency across most of Europe does not mean there will eventually be only one stock exchange left:

"The number of stock exchanges we are going to end up with in Europe will not necessarily be dictated by the number of currencies we have. For instance, in the U.S. [which has only one currency], they still have several stock exchanges. New York, of course, is the best known and the biggest, but there are a series of regional exchanges as well, which meet regional demands which companies have for financing and capital market provision".

IX is of course not the only bourse merger project in Europe. The Paris Stock Exchange is leading a fusion with the Amsterdam and Brussels exchanges, which will creating an entity called Euronext. The chief spokesman for the Societe de Bourse Francaise, Bruno Rossignol, told RFE/RL that the merger is progressing as planned.

"Absolutely, we are very happy with our own merger, which is proceeding very smoothly, and which will become a reality on the 22nd of September."

Rossignol says the exchange of shares between shareholders of the three bourses is now being proposed -- and once that is completed, Euronext will be in existence. He said the entity is open to other bourses which may wish to join.

As for Sweden's OM, if it persists in its hostile bid for the LSE, the next step will be to issue within 28 days documents setting out its offer, for the consideration of shareholders. The bid is described as "hostile" because the LSE's management does not agree with it.

One additional consequence of the Swedish bid is that it may bring about other surprise offers from unexpected directions for the prized London Stock Exchange. That would create further risks to the IX project.