Euronext is the only declared suitor left for the London Stock Exchange after the apparent exit of rival Deutsche Boerse, but a bid from the pan-European exchange is by no means certain, observers say on March 8. Euronext may appear to have a clear run to win control of Europe's biggest stock market, but its tactical chief executive is unlikely to table an offer without support from LSE's board as well as from its own shareholders, regulators and users. "In a paradoxical way, Euronext's room for manoeuvre seems to have narrowed with Deutsche Boerse's withdrawal," said analyst Alain Dupuis at OddoSecurities.
"They (Euronext) also have shareholders to respond to and if they can't convince the LSE to settle for a lower price, they would also have to drop out," he said, referring to Deutsche Boerse being forced by shareholders - representing more than a third of its capital - to ditch a 1.3 billion pound ($2.5 billion) bid.
OVERTURES: The ball has now bounced back into Euronext's court. Deutsche Boerse's withdrawal on Sunday prompted the LSE on Monday to make fresh overtures to the operator of the Paris, Amsterdam, Brussels and Lisbon stock markets, saying it was still willing to "continue discussions...about the possibility of an offer". Some observers doubt Euronext will step in with a formal bid despite proposals last month to take over the 300-year-old London bourse.
"Why on earth should Jean-Francois (Theodore) buy it? He backed into it very shyly. He didn't want to go for it for himself. He just wanted to make sure the other chap didn't get to go for it," said an industry source close to the LSE.
Boerse said on Sunday it reserved the right to submit a new bid if Euronext or any other party made an offer.
That has led some observers to believe Euronext would be loath to show its hand and risk being trumped by a higher offer from Boerse.
"Has (Boerse CEO Werner) Seifert really gone away? Has the wolf gone away from the door but is still at the garden gate?" said the source.
Oddo's Dupuis agreed. "If Euronext convinced the LSE that a lower price (than Boerse's 530p) was still a good deal, you can be sure Boerse would be back with an offer within a minute."
But other observers said that the extent of shareholder discontent at Boerse, plus Seifert's pledge to hand them back cash, made a fresh bid unlikely at least in the short term.
"I don't think Deutsche Boerse could come back. They could change their mind on giving cash back and go for the LSE again, but this would spark an even bigger shareholder rebellion," said an analyst in London. "It seems they're out of the race for now." If Theodore does decide to go ahead, he will have to steer a careful course.
"Euronext will have to play a tight game and carefully plot its moves to avoid a rebellion of its own shareholders like at Deutsche Boerse," said the analyst.
With Boerse sidelined at least for now, Euronext has time on its side. It is waiting for a ruling by Britain's Office of Fair Trading due by the end of March that could influence what the exchange is willing to pay for the LSE.
In the meantime, Euronext's management will carry on with the delicate task of convincing shareholders, some of whom, like The Children's Investment Fund, are also investors in Boerse and helped scupper Boerse's LSE ambitions.
Any opposition to Euronext's deal is unlikely to become as vocal as at Deutsche Boerse, since Dutch-incorporated Euronext is required by law to put a bid to shareholders' approval.
But observers say that Theodore, a skilled strategist, will not even put the issue to the vote until he is sure of winning.
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