The LSE / Borsa Italiana Merger
Clara Furse's 'Italian Job' marks a change in tactics for London. But is it enough to keep Nasdaq at bay?
Ever since it became a quoted company, the London Stock Exchange has been fighting for its life. In the past two years, chief executive Clara Furse has fended off no fewer than five takeover attempts from rival exchanges. Now she will finally make the transition from central defender to striker, scoring an all-share £1.1bn merger with the LSE's counterpart, Borsa Italiana.
The deal has been described as "very advantageous" to the Italians, who extracted a healthy price and will certainly gain credibility from the association. But Furse nonetheless did well to nail her Romeo. Even by the promiscuous standards of the exchange sector, Borse Italiana is a complete flirt, staging lengthy discussions with rival suitors Euronext and Deutche Borse while also, interminably, considering its own float.
The tie-up with Milan looks sensible – both as a defensive move and a strategic one, but much hinges on the reaction of Nasdaq, whose own offer for the LSE was rebuffed in February and which continues to hold a 30% stake. The Borsa tie-up doesn't put London out of reach of the Americans, but it does give Furse more bargaining chips if Nasdaq returns for a second strike next year.
Not only does the LSE get a bigger slice of the fast-growing derivatives market, but the all-share deal has the added bonus of diluting Nasdaq's holding to around 20%. But although Nasdaq can't block the deal, it can still affect the outcome.
If threatened to sell out of the LSE completely and throw its weight behind Project Turquoise (the rival platform set up by a consortium of investment banks to challenge the LSE), it could cause a nasty dent in Furse's share price.
Italy alone is not enough to confer real security. If it is to remain independent, London needs a heftier companion. Spain's young, free and single exchange, which has a €3.7bn market capitalisation almost rivalling London's €4bn, might prove the perfect partner.
A Club Med strategy could be the way forward for London, particularly as Nasdaq is unlikely to look kindly on the Borsa merger. Moreover, Furse has made it clear that she sees this deal as a first step rather than an end game.
There's still everything to play for, and the Milan deal, while marking a watershed in tactic, does not mean that the London Stock Exchange is out of the woods. But if Clara Furse can prove she's as good at offence as she is at defence – watch out.
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