Battle For The Bourse

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The London Stock Exchange is as quintessentially British as cricket or the BBC. As far back as 1698, dealers met in Jonathan's Coffee House in London's teeming Change Alley to trade prices and shares. When the L.S.E. moved to a new, high-tech headquarters last year, Queen Elizabeth herself stopped by to dedicate it. But today the L.S.E, the battleground for many a corporate takeover, is itself about to be taken over — and neither of its two main suitors is British. Deutsche Börse, operator of the Frankfurt stock exchange, has proposed a $2.41 billion bid to buy the L.S.E. And Euronext — an upstart rival that runs the Paris, Amsterdam, Brussels and Lisbon bourses — is drawing up a counteroffer. Both parties met last week with L.S.E. chief Clara Furse, who is expected to make a decision with her board as early as this week.

The anticipated sale has ruffled feathers on both sides of the Channel. A similar bid by Deutsche Börse was rebuffed in 2000, in part out of national fear of handing the British institution over to foreign control. This time it's reversed: German officials have expressed concern about the headquarters of the exchange moving to London, hurting Frankfurt's status as a financial center — a concern shared by Deutsche Börse's union, which fears job losses. But a spokesman for the Finance Ministry said the government supports the merger without restrictions.

Why so much fuss over who owns which stock exchange? After all, the days of crowded trading pits where dealers scream out prices are mostly gone. Now the deals are done on computer terminals in quiet back offices. No matter who buys the L.S.E., most investors and companies that trade there won't notice a difference.

But the L.S.E. does have high symbolic value. As Europe's largest stock exchange, its merger with a Continental bourse would accelerate the 21st century trend toward a more global market. Advocates say it would add depth and liquidity to Europe's capital markets, and might help drive down transaction costs for investors. "This deal is good for the European capital markets, it's good for our clients and their clients, and it's good for the two companies," Deutsche Börse CEO Werner Seifert told TIME.

Of course, that's assuming Seifert's bid prevails. He has been playing a hurry-up game, but Furse wants to slow down — and encourage a bidding war that drives up the price. "I'm expecting one," says Olaf Kayser, an analyst at Landesbank Rheinland-Pfalz. "The loser will fall behind and be in a difficult position." Deutsche Börse has offered $9.91 for each L.S.E. share, but that bid was spurned by the L.S.E. Analysts think the eventual price will be at least $11.20, which would drive the total price up to $2.78 billion.

But Euronext, which was founded in September 2000, is not about to give up without a fight. Euronext CEO Jean-François Théodore also met with Furse last week, and is said to have sweetened his deal by offering all cash. Some French analysts believe that despite its smaller size, Euronext might have a number of advantages over Deutsche Börse. Euronext already has 25% control of LCH Clearnet, a separate company that the L.S.E. uses to "clear" trades. Euronext in 2002 also bought liffe, a London-based futures and options market that lets investors bet on the future price of commodities like cocoa and coffee.