Monday, 25 June 2007

Stock Exchange Merry-Go Round


I blogged before about what I though should happen with the LSE. I thought it would be better to accept a merger with the NASDAQ. As it turned out its shareholders decided to keep it independent (for now). The share price has held up quite well too, but the NASDAQ has a 30% stake that if it sold would hammer the current price and destroy shareholder value.

Now the LSE has a new strategy, expansion. It has decided to buy the Borsa Italiana, this is a good move by the LSE into Europe. Remaining purely in the UK is not an option, AIM is not quite going the great guns that it was and the main market is bein affected by the coninuous PE buyouts (although of course there are IPO's by PE companies to counter this). European expansion is the obvious answer and this is a good deal.

However, is it really a viable long-term strategy? I think not. The LSE is about to have a real challenge from Project Turquoise, a new bank strategy designed to under cut the LSE. They selected a systems provider today, OMX. This will hurt the LSE cash cow business of share trading.

In addition the NYSE has Euronext and is also on the expansion track, as is NASDAQ. I don't see that the LSE has enough clout (finances) in the long-term to remain independent. It would do better to go for a big US merger and try to be a 50/50 partner. With this model the company could compete much better with the emerging new market Stock Exchanges. In addition the cost savings from a merger would deliver better profits an dividends to the shareholders.

In international capital markets no one really cares about national flags, just money and profits, the UK business press who suck up to the LSE do so because it provides them with so much copy for their papers, alot of it free; their journalists if less affected by this symbiosis about the prospects for Clara Furse's organisation.

9 comments:

Anonymous said...

I agree completely, but think and even better strategy would be expansion and acquisitions in the pacific rim; Europe is too insular to make any acquisition a good long term strategy.

NYSE will happen, or the yanks would have dumped the stock and took the money, imo.

Anonymous said...

For the first half of this post I thought you were talking about the London School of Economics and I was understanding even less than usual.. its a Stock Exchange thing right?

Anonymous said...

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CityUnslicker said...

Shot - Hard to buy the Asian exhcnages as the governments there are more of a mercantilist bent, but you aright in terms of needing a global outlook.

CityUnslicker said...

Mutley, I thought of this and helpfully included a logo as a guide. I must try harder.

Perhaps NASDAQ could do with a school of economics though....that would be a deal to sell to them!

Anonymous said...

In your aticle you refer to NYSE holding a 30% stake, surely you mean NASDAQ?

CityUnslicker said...

quite right Anon...I have made the change!

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