While rejecting numerous overtures from suitors, the London Stock Exchange has failed to go on the offensive and risks being left behind.

There is no doubt that the London Stock Exchange (LSE) is an august and liquid market, and a business that some potential buyers may have undervalued. Sadly, there is also little doubt that the LSE is allowing its advantages to be chipped away by more aggressive and adventurous competitors (see cash & securities services, page 48).

More than a year ago, The Banker suggested that, rather than spend its time dressing up for, or rebuffing, suitors, the LSE should demonstrate that it has a strategic vision; a vision that goes beyond boosting its share price (or making it a more attractive target) and enables it to compete against other exchanges with more diversified offerings and revenue streams.

Instead of doing this, the LSE looks increasingly exposed; and other exchanges are doing deals that the LSE should be part of. The Euronext-New York Stock Exchange merger, for example, brings together two major pools of liquidity and could create a global champion.

Playing hard to get

Since 2000, the LSE has snubbed Swedish, German, French and American stock exchanges and an Australian buyout fund. Sometimes because the offer price was considered derisory; sometimes because proposals were not deemed to be the best option for the market or the shareholders.

Lack of vision

But at no point has the LSE gone on the offensive. It has remained a sitting target instead of setting the agenda. The management repeatedly says that the LSE is a unique marketplace, so why has it not used this position of strength to make acquisitions or expand in growth markets such as India.

Instead, that deal has been done by the NYSE which, alongside three other investors (including the ever-bold Goldman Sachs), last month took a combined 20% stake in India’s largest stock exchange. NYSE’s 5% will give it access to one of the world’s fastest growing markets.


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