Dubai stake in LSE gains after merger deal agreed

Borse Dubai reaps windfall from potential tie-up between London and Toronto exchanges.

The London Stock Exchange has offered to buy the Toronto Stock Exchange to create the world's fourth-largest bourse.

Borse Dubai's stake in the London Stock Exchange (LSE) gained more than US$25 million (Dh91.8m) in value yesterday after the London bourse operator agreed to buy its counterpart in Toronto.

The proposed $3.2 billion deal, which would create the world's fourth-largest exchange, will be subject to strict Canadian laws on foreign ownership.

Borse Dubai, which controls Dubai's two stock exchanges, is the largest single shareholder in the LSE, owning 20.6 per cent. The shares yesterday closed 3.14 per cent higher after rising as much as 10 per cent in the day.

The proposed merger also has ramifications for oil and gas companies in the Gulf, as one of the main intentions of the deal is to create a primary exchange for international commodities and energy firms. If successful, shares in listed firms would attract more volume and private companies would see the new bourse as an attractive place to float their shares.

Local analysts said the deal would be beneficial for the two western bourses and for Dubai.

"This should provide greater depth to the [London and Toronto] exchanges, and it's good for Dubai's future," said Ameed Kanaan, the general manager for AlJazeera Financial Services in Dubai.

While energy and raw-materials suppliers make up 22 per cent of the value of equities worldwide, they account for 36 per cent of companies listed in the UK and 50 per cent in Canada.

The potential tie-up between LSE and Toronto Stock Exchange operator TMX Group comes at a time of rapid consolidation within the industry as a handful of global trading centres fight for market share.

One reason LSE shares climbed yesterday is that many investors feel further such deals are in the pipeline. Borse Dubai maintains a significant financial stake in the outcome of the industry's reshuffling. In addition to its LSE holdings, it owns 15 per cent of Nasdaq OMX, the owner of the second-largest equity exchange in the US.

Separately, Deutsche Boerse is in advanced talks to buy NYSE Euronext in a deal that would create the world's largest equity exchange.

Borse Dubai was set up in 2007 to further the UAE's aim to establish itself as a financial centre strategically positioned between the East and West.

It operates the Dubai Financial Market and Nasdaq Dubai, and for a time sought to gain control of other international bourses.

As with many Gulf entities, Borse Dubai was not immune from the effects of the financial crisis. Last month the company gained some breathing room for its outstanding debts by raising $1.1 billion through two separate transactions - one in which it sold more than half of its shares in Nasdaq OMX and another it which it agreed to a new three-year loan.

Borse Dubai, a unit of the Investment Corporation of Dubai, said yesterday afternoon it backed the deal.

"Borse Dubai has always been supportive of management initiatives to create shareholder value in the London Stock Exchange," the company said.

Qatar Investment Authority owns 15 per cent of LSE.

To acquire 55 per cent of the combined company, the LSE offered about $3.2bn in stock. A sale would mark the largest takeover of a Canadian financial services company by a foreign firm.

* with Bloomberg.

Additional reporting by Hadeel al Sayegh