Icap confirms LSE merger talks

Icap confirms LSE merger talks

Icap has emerged as the latest suitor for the London Stock Exchange (LSE) after it confirmed that it had held exploratory talks with the UK market operator regarding a possible merger, but the interdealer broker says discussions have been halted, reportedly because the LSE's share price is too high.

Icap released a statement this morning confirming the merger talks following speculation over the weekend.

According to a report by the Sunday Times, Icap and LSE held merger talks over the summer aimed at creating an "all-British solution" to the "battle for consolidation among the world's stock exchanges".

A merger between the two would create a £5.9bn group and would bring together the LSE, which operates Europe's largest equity market, with Icap which is the world's largest interdeal broker and is valued at £3.3 bn.

The deal would also provide the LSE with a platform to build a derivatives market, which it has been seeking ever since it lost the battle for control of Liffe to Euronext.

But Michael Spencer, chief executive of Icap, has reportedly halted discussions because at over £12 per share, he believes the LSE is too highly valued.

The LSE's stock price has almost doubled since the beginning of the year on the back of continuing talk of a transatlantic merger with Nasdaq as well as speculation of a tie-up with Nordic and Baltic market operator OMX and pan-European exchange Euronext.

LSE shares were up a further 0.30% to 1247 pence in mid-morning trading.

Earlier this year Icap acquired bank-owned electronic currency trading platform EBS for $775 million in cash. The broker said last November that it was seeking deals to expand its electronic trading business following a steep rise in e-trading volumes.

In March the LSE rejected a cash bid of 950 pence a share from Nasdaq for being too low and refused to enter discussions with the US market operator. Since then Nasdaq has built up a 25.1% stake in LSE, fuelling speculation of a hostile takeover bid.

However news of the Icap talks comes at a sensitive time for the LSE as, under UK takeover laws, on 2 October Nasdaq will be free to bid for the rest of the London exchange.

But Nasdaq would still have to pay £12.43 per share — the price at which it bought LSE shares from Threadneedle Asset Management and Scottish Widows — so it is thought that the US firm will wait a further six months for this rule to lapse.

In the meantime the LSE is expected to continue exploring other options, including possible deals with private-equity partners.

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