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Gulf stakes buttress LSE future confidence

London stock exchange

LSE seen less likely target after Italian share sales; Dubai, Qatar owners in for long haul-analysts; Greater liquidity seen in LSE stock

May 26, 2012 9:01 by

The London Stock Exchange Group fortified its defences against takeover on Wednesday after a stake sale by Italian banks cemented the dominance of its two largest shareholders seen as in for the long haul.

The LSE, which was a continual takeover target for rivals such as Deutsche Boerse and Nasdaq OMX through the middle of the last decade, has been seen by analysts as potentially back on the block this year.

A takeover has been mooted since the high-profile $7.4 billion merger of potential bidders NYSE Euronext and Deutsche Boerse collapsed in February. This followed the failure of the LSE’s own 2.3 billion pounds plan to buy Canada’s TMX Group last June.

The world’s largest exchanges are keen to merge to consolidate more trading activity on fewer venues, thereby cutting their costs and increasing profitability.

But no LSE bid has emerged and neither is one likely in the short term, say analysts, because of the British exchange’s shareholder breakdown, which includes two large, long-term owners in Borse Dubaiand the Qatar Investment Authority (QIA).

Borse Dubai owns 20.6 percent of the LSE and the QIA has 15.1 percent, while the next largest LSE shareholder is Fidelity Worldwide Investment (UK) Ltd, with 5 percent.

“In Dubai and Qatar, the LSE would seem to have two solid shareholders who don’t look like selling any time soon,” said Peter Lenardos, an analyst at RBC Capital Markets.

The endorsement came after the LSE’s third and fourth largest shareholders, UniCredit and Intesa Sanpaolo , sold their combined 11.5 percent stake in the LSE to institutional investors for 960 pence per share.

The deals, which will boost trading in LSE’s shares, valued UniCredit’s 6.1 percent stake at 197.6 million euros ($252 million) and Intesa’s 5.4 percent holding at 172.5 million euros.

The sales by the banks, which inherited the stakes after the London market bought its Milan rival in 2007, make the Qatar fund and the Dubai exchange the LSE’s last remaining large, long-term shareholders.

The Gulf investors have held these positions since 2007, when Borse Dubai bought 28 per cent of LSE shares from Nasdaq OMX, which had failed to buy the LSE earlier that year, prompting Qatar to take a 20 percent stake.

The firms’ stakes were diluted down to current levels, when the LSE bought Borsa Italiana in late 2007, which added the top Italians banks to the LSE shareholder roster.

The sale by the Italian banks on Wednesday was seen by analysts as a positive move for the LSE because it increased the number of exchange shares readily available for trading – known as ‘free float’.

“While a higher free float means it’s easier to buy shares in the open markets, sometimes would-be acquirers build stakes by approaching large investors,” said Richard Perrott, an analyst at Berenberg Bank.

Traders like a large free float as it boosts liquidity in a particular company’ shares which means they are able to buy and sell shares quickly.

But LSE shares traded down 7.25 percent to 946 pence a share on Wednesday, broadly in line with the terms of the sale, suggesting investors agree with analysts and do not see a takeover approach for the LSE.

“If the market was expecting takeover interest the shares would’ve opened up but they traded down after the sale,” said Perrott.

The LSE declined to comment while Borse Dubai and the QIA were immediately unavailable for comment.

The sales by the Italian banks was linked to the euro zone debt crisis, which has forced them and other banks in the region to focus on core operations and shed non-strategic assets to boost their financial strength.

The LSE stake was not among UniCredit’s core holdings, the bank’s CEO Federico Ghizzoni said inParis on Wednesday.

“It seemed the right moment to sell. It is part of the strategic plan we announced in November when we said we would sell some holdings,” Ghizzoni told reporters.

But the exit underscores Italian banks’ fast diminishing influence at the LSE Group.

These firms owned between them 28 percent stake just four years ago but, after the UniCredit and Intesa sales on Wednesday, they are left with just 3 percent.

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