What’s more, rumours abound that other high-profile mergers are on their way. Notably, Euronext — the exchange that was formed after the merger between the Paris, Amsterdam and Brussels exchanges in 2000 — is said to be courting the Spanish and Italian bourses, Europe’s fourth and fifth biggest exchanges.
The Milan exchange, in particular, appears to have developed close ties with Paris-headquartered Euronext. In April, it was widely reported that Jean-Francois Theodore, Euronext’s CEO, had held informal talks with his Italian counterpart, Massimo Capuano, who received a personal invitation from Euronext to join celebrations to mark the bicentenary of the Belgian exchange last year. For its part, the Madrid exchange is believed to favour closer ties with Deutsche Borse.
No Going Back
While much is mere speculation, what is clear is that the ability of Europe’s exchanges to offer their customers a single, efficient exchange is taking a lot longer than they once thought. Indeed, despite the bold plans following the launch of Europe’s single currency, the only notable consolidation to date has been Euronext, which has since taken the Lisbon exchange and the London-based Liffe derivatives exchange into its fold.
Not that the exchanges haven’t tried. A case in point: the trumpeted iX — a proposed merger between LSE and Deutsche Borse that collapsed in September 2000. Or OM’s audacious bid for LSE later the same year, which also came to nothing.
And remember when eight of Europe’s national exchanges — including Deutsche Borse, LSE and the exchanges that were to become Euronext — botched a plan to create an alliance of eight exchanges trading 400 of Europe’s leading blue-chip stocks in late 1999? “People underestimated just how difficult it would be to consolidate Europe’s exchanges,” says John Woodman, a partner at Efficient Frontiers, a securities industry consultancy.
There are numerous reasons for the failures — from unrealistic expectations to nationalism to the bear market.
Then, of course, there are the egos of exchange bosses. Woodman notes that that though the bourses’ chief executives say that they are keen to press ahead with consolidation in principle, they’re not so keen to do a deal that puts them out of work. “In part, consolidation is about leaders potentially losing their jobs,” he says. “There’s a tremendous self interest in delaying it.”
However, with some justification, the exchanges say that they’re not the only ones to blame for the slow pace of consolidation. Earlier this year, Don Cruickshank, the outgoing chairman of LSE, said that further consolidation of Europe’s exchanges needs to happen in step with EU-level regulatory reforms, which are expected to be completed by 2005.
With or without EU action, this is going to be an evolution, not a revolution. “I expect Europe to have just two or three pools of liquidity in the next two to three years,” says Bruno Roche, a corporate financier at BNP Paribas in Paris.
Power of Three
The question is, which model of consolidation is likely to prevail? Deutsche Borse, Euronext and LSE seem to have markedly different growth strategies.