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Deutsche Boerse Set To Win Clearstream

by Ulrika Lomas, Tax-News.com, Brussels

10 December 2001


Luxembourg-based securities settlement house Clearstream decided on Friday to ignore an increased offer of $2.3bn from rival Euroclear and to enter negotiations for a full takeover by 50% shareholder Deutsche Boerse, which had so far underbid Euroclear.

Euroclear's bid had been hamstrung by Clearstream's decision to withhold crucial financial information, and its retirement from the battle seems a lost opportunity to radically alter Europe's financial landscape by creating an integrated clearance and settlement agency which would begin to chip away at Europe's very high share-trading costs - said to be up to seven times the equivalent in the US.

The decision, which can laid at the door of Deutsche Boerse rather than Cedel, holder of the other 50% of Clearstream's shares, also throws down a gauntlet to the European Commission which is looking at possible anti-competitive practices at vertical trading 'silos' like the Frankfurt exchange.

Clearstream's board met on Friday and decided to recommend to Cedel International to enter into exclusive discussions with the Frankfurt exchange. The discussions would focus on agreeing an "appropriate price and other transaction parameters" for the acquisition by the Boerse of Cedel's stake, said Clearstream. Deutsche Boerse chief executive Werner Seifert is said to have given the Clearstream board, of which he is a member, 'a strong indication there was scope for considerable improvement' in Frankfurt's offer.

Many other board members are representatives of the banks that own Cedel and Euroclear, and cannot be happy to see Clearstream swallowed up by Deutche Boerse. Most of them are members of the Euorpean Securities Forum which includes banks conducting a high proportion of European equity trading. "The ESF members have continuously believed that a merger between Euroclear and Clearstream would be in the long-term interest of the European capital market," said ESF executive chairman Pen Kent said on Friday.

"A decision which might lead to a full merger between Clearstream and the Deutsche Boerse would seem to go in the opposite direction," Kent said.

Euroclear said it was "not too surprised" by the outcome, since Deutsche Borse had "made clear that there was only one option that Clearstream had before it. We still believe consolidation will happen."

If Deutchse Boerse does have to pay more than $1bn dollars for Cedel's stake in Euroclear (more cash than it currently has) it will have problems in financing a bid for the London Stock Exchange, whose shares touched a record high of 405p on Thursday when it seemed that Deutsche Boerse, one of four international exchanges talking to the LSE about a merger, would intensify efforts to strike an alliance if it lost the battle for Clearstream.

Deutsche Börse insisted on Saturday that there was still a “good business case” for a tie-up with the LSE. But analysts said that the Frankfurt market, would now struggle to raise the financing for a deal with its London rival.


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