Middle East may hold the key after collapse of London Stock Exchange merger

The London Stock Exchange's largest shareholders, Borse Dubai and the Qatar Investment Authority, have emerged as key decision-makers in the future of the bourse after its failed merger with Canada's OMX Group.

Middle East investors appear to hold the key to the future of the London Stock Exchange as the bourse is regarded as vulnerable to a takeover after its potential merger with Canada's TMX Group collapsed.

The US$3.5 billion (Dh12.85bn) merger between the London Stock Exchange (LSE) and TMX fell apart late on Wednesday after failing to get support from two thirds of shareholders. Amid a wave of consolidation in the industry, the development sparked speculation that the exchange needs another partner.

Borse Dubai is the largest single shareholder in the LSE, owning 20.6 per cent, and the Qatar Investment Authority holds 15.1 per cent. Both entities will be influential in determining whether to pursue a new tie-up.

"They [the Middle East investors] might be like us and think this is a very good turnaround … and the shares have still got upside on the fundamentals," one of LSE's largest European shareholders, speaking on condition of anonymity, told Reuters yesterday.

"But if they get impatient - it's the Dubai stake that is the critical one - if they were to get impatient they could easily put the company into play. With two big shareholders, it's a done deal if they want it to happen," the investor added.

Borse Dubai officials could not be reached for comment yesterday.

The company also owns 15 per cent in Nasdaq, the US bourse operator cited yesterday as most likely to be interested in the London exchange.

Nasdaq has already twice tried and failed to buy the LSE, and in May the US company pulled out of plans to buy the New York Stock Exchange.

"If you look at the competitive landscape now and just try to figure out who's left, if [the LSE] are looking for that Atlantic tie-in [Nasdaq] just seems like a natural," said Sang Lee, the managing partner at the research company Aite Group in Boston. "Based on past relationships, the fact that both of them have failed at getting bigger in the last few months, it could be an interesting combination."

The TMX deal fizzled after Canadian officials argued that the proposed new holding company structure - 55 per cent owned by LSE and with a majority of London board members - gave London too much influence at the expense of Toronto.

The LSE said its shareholders had overwhelmingly backed the merger. The chief executive, Xavier Rolet, said he was "clearly disappointed".

"Despite a majority of both LSE group and TMX Group shareholders voting for our recommended merger, the two thirds approval threshold for TMX Group shareholders was not met and the merger will now not proceed," he said.

But he added that the group continued to see "other significant growth opportunities".

Mr Rolet had told The Times this week that the bourse would "absolutely not" be put up for sale should the TMX Group deal fall through.

Tom Kloet, the TMX chief executive, said the company would now review a rival takeover bid by Maple Group Acquisition, made up of 13 Canadian banks and pension funds.

TMX said it would pay a $10.3 million termination fee to the LSE, and a further $29.8m if the acquisition with Maple went through.

* with agencies