LSE tie-up with Toronto pressures other exchanges

Fri Feb 11, 2011 2:49pm EST
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By Luke Jeffs and Paul Hoskins

LONDON (Reuters) - The London Stock Exchange agreed to buy Canada's stock market operator TMX, while Germany's Deutsche Boerse was in talks to buy NYSE Euronext, signaling that exchanges globally are looking to consolidate.

The combined LSE and TMX would be the world's fourth-largest exchange and a top center for trading mining and energy shares, with $4.1 trillion of stock changing hands a year. The exchanges are looking to regain market share lost to upstart electronic trading platforms.

Other exchanges could face similar pressures. Two sources familiar with the matter said New York Stock Exchange operator NYSE Euronext is in talks to sell itself to Germany's Deutsche Boerse. A deal would allow the companies to cut costs and dominate exchange trading in Continental Europe.

LSE shares rose 9 percent after its the TMX deal was announced. The rising share price signals LSE could be getting a good deal, which in turn could allow another buyer to offer a higher price for TMX.

If the combination survives likely political opposition in Canada, a group will emerge with a market value of 4.3 billion pounds ($6.9 billion) based on Tuesday's prices, with LSE shareholders holding 55 percent.

The deal indicates a valuation for TMX of C$46.7 per share, a 16 percent premium to its Tuesday close.

With Xavier Rolet at the helm, the LSE is fighting to win back market share lost to upstart rival trading platforms after Europe opened markets in 2007 to challenge incumbent exchanges long protected behind national boundaries.

The deal will put more pressure on bourses to seek partnerships to counter the threat from bigger rivals, with particular pressure on Deutsche Boerse, though remaining independent stock exchanges are scarce.   Continued...

<p>London Stock Exchange CEO Xavier Rolet (L) and TMX Group CEO Tom Kloet speak to the media in an overall view of the TMX Broadcast centre regarding the merger of the TSX and the LSE in Toronto, February 9, 2011. REUTERS/Mark Blinch</p>