iX – The Merger Attempt of
the London Stock Exchange and the Deutsche Börse

by

Patrick Lobis

Department of English Business Communication
Vienna University of Economics and Business Administration
SS 2003

Table of Contents

Figures  2

1. Introduction 

2. The London Stock Exchange (LSE) 

3. The Deutsche Börse (DB)  5

4. The merger plans  6

5. The benefits of the merger  7

6. Question Marks and Fears  8

7. Hostile takeover bid  11

8. Aftermath  12

9. Outlook and Conclusion  13

10. Glossary  15

11. Bibliography 

Figures
Figure 1: The future oranizational chart of iX. Data based on London Stock Exchange 2000a  7

Tables
Table 1: Comparison between the LSE and DB  3

1. Introduction

As globalization is becoming more than just a flashy but theoretical term and market liberalization is at last reaching continental Europe, stock exchanges are forced to adapt to the new economic reality. With the unified European market taking shape, national monopolies are doomed, especially in such a fast-moving and most international sector such as finance. As companies go more and more international, the exchanges they are quoted at cannot allow themselves to stand still. In the world of global finance, it is all or nothing, being second means having lost, as capital always goes where it finds the most favorable conditions and best accessibility. Until recently, barriers between the national financial markets were high, but with the single European currency and new EU regulations being implemented, fierce competition for trading volume, initial public offerings and quotations among stock exchanges has commenced.

As in any industry in the process of liberalization, it becomes evident that not all of the players have the abilities to survive this process of natural selection. Pairing up with strong partners or with rivals having complementary skills and qualities are common strategies to secure long-term success, be it out of pure necessity, be it to strengthen an already dominant position against future competitors. However, mergers and cooperation might contain a myriad of pitfalls and only most detailed evaluation brings the true value add of the deal to light.

This paper is meant to highlight the various decisive factors in merger projects of stock exchanges by exploring the landmark merger attempt between the London Stock Exchange and Deutsche Börse, called iX, in summer 2000. The first part will give a desciption of the characteristics of the parties involved. The paper will give insights into the details of the merger plan and its benefits. The drawbacks and dangers of the will be treated as well as the events that finally led to the failure of the project. The last section consists of a closer look at the lessons learned and attempts an outlook into the future of these leading European stock exchanges.

2. The London Stock Exchange (LSE)

The London Stock Exchange can look back on a proud history, dating back to 1801 (London Stock Exchange – Online: n.pag.). As the national stock exchange of England, the cradle of industrialization, the LSE was able to keep its pre-eminence among its peers even as Great Britain’s economic power slipped away. Its dominance in Europe was impressive: at some days, more shares of the German company Siemens were traded at the LSE than in Frankfurt and the volume in Alcatel stocks changing hands in the City surpassed trading in Paris (Fuhrmans and Portanger 2000).

The first years of the 1980s brought along far-reaching changes for the LSE. With the Big Bang, the organization of the London stock market changed dramatically, and a screen-based trading system - Stock Exchange Automated Quotation (SEAQ) - was introduced (Obenaus and Weidacher 1990: 50). With these reforms, LSE seemed to be well prepared for the second half of the ‘decade of greed’. The further development, however is marked by a certain laissez-faire-attitude of the management, the LSE is resting on its laurels as profits remain high. In order to develop the successor system for SEAQ, over 1500 specialists worked on technology projects, but coordination between the various efforts did not take place (Fuhrmans and Portanger 2000). The sales staff did not succeed in licensing the SEAQ platform to other European exchanges, as those preferred to develop their own trading platforms. Budgets were surpassed tenfold, but advance in mega project such as the new Taurus settlement system was minimal. Despite all these problems looming already at the horizon, the management still “felt aloof their European counterparts” (White 2000).

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