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Euroclear Says Rival Bids Are Both Too Low

by Ulrika Lomas,, Brussels

06 December 2001

Luxembourg-based securities settlement house Clearstream has received bids from Deutsche Börse and Euroclear for the 50% stake currently held by Cedel, another transaction-clearing organisation owned by more than 90 banks and securities houses. The other 50% of Clearstream is owned by Deutsche Börse. But in a major setback for the German exchange, Cedel said on Wednesday that the two bids are too low.

Euroclear is Clearstream's main rival on continental Europe in processing transactions in bonds, equities and other financial instruments, and the battle for Clearstream is seen as crucial in deciding the future of consolidation among Europe's markets, with a Euroclear-Clearstream merger potentially leading to a single clearing house for Europe.

At issue is the sky-high cost of settling European securities bargains, said to be often up to seven times the US cost, and the question is whether Clearstream should be fully owned by the banks via Euroclear or solely by Deutsche Borse. There may be competition aspects, although the EU has not made any pronouncements on the subject.

Earlier this year Clearstream was the subject of various investigations launched after two French journalists, one of them a former Cedel employee, published a book in which they alleged that the depository allowed clients to open accounts for the purposes of money laundering. Clearstream denied the allegations, which were not upheld by the investigations and started legal proceedings against the journalists. The affair delayed consideration of Clearstream's fate for some months.

People close to the negotiations have suggested that any bidder would have to pay more than $3bn to gain control of Clearstream, but both Deutsche Börse's and Euroclear's offers are believed to be below that figure.

Euroclear said it was not ruling out improving its proposal, saying: "The proposal we made on October 31 was never meant to be a best ever offer. We have always said we were willing to negotiate beyond that." Euroclear says that a horizontal merger between the two groups would make more sense and raise fewer competition concerns than a vertical merger with Deutsche Börse.

Many international banks favor a merger of Clearstream with Euroclear, whose chairman Chris Tupker recently estimated the savings potential from a merger with Clearstream at 200 million euros a year.

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