Opportunity or Risk for Deutsche Börse?

The Deutsche Börse has offered €1.95 billion ($2.6 billion) for the London Stock Exchange (LSE), four years after a similar attempt failed. It could be the start of the long-awaited consolidation among Europe's stock exchanges.

But Germany's national bank, the Bundesbank, seems to view a takeover with skepticism. Bundesbank board member Hans Reckers was concerned about Frankfurt's place in the financial world. "The question must be asked in such a situation, just how Frankfurt's competitive strength can be secured," Reckers was quoted in the Financial Times Deutschland on Wednesday. One cause for worry is just where the new super-bourse would have its headquarters, Frankfurt or London. Deutsche Börse's chairman, Werner Seifert, has given no clear signal as to where the management would sit.

Rivals might jump in

Meanwhile, the financial world is questioning the strength of the takeover attempt. "Deutsche Börse has proposed a price which means value creation for acquiring exchanges will be difficult to realize," analyst Claire Langevin at Exane BNP Paribas told Reuters. Deutsche Börse's bid has been rejected by LSE which said the offer was too low.

"A takeover is now just a question of time. I think that Frankfurt's attempt is correct and the proper thing to do in a European market that is growing together," financial expert and professor at the University of Nuremberg-Erlangen Wolfgang Gerke said in conversation with DW-WORLD. European competitors most likely will not stand and watch a takeover attempt. They too will have to throw their hat in the ring for the LSE, he said.

One of those is Euronext. Home to the stock exchanges in Paris, Brussels, Amsterdam and Lisbon, Euronext ranks as the smallest rival in Europe. Langevin argued that if Euronext stays out of the fight, it could pay the consequences, "It faces a large strategic loss and potential long-term pricing issues," she said.

The price is right now

The current bid has put the competition in a pinch. A bidding war with Euronext, and possibly the Nordic exchange group OMX, the rising costs that go along with it and a likely stock issue to finance the takeover would test shareholder patience, analysts said. "The 530p bid is sensible, but it should not be much more," spokesman Rolf Drees at Union Investment told Reuters.

"Synergies" is the word in most experts' mouths. Analyst Pierre Flabbee at Kepler Equities told news agencies that it would take one or two years before LSE profits would help the Börse's earnings. An initial heavy investment to merge LSE and Börse information technology would limit early potential. Should Börse cave in to pressure from market participants to cut trading fees, something it indicated it would do when it launched the takeover approach, it would take even longer for synergies to filter through to its bottom line.

No matter the price, much is riding on the line for Seifert. Traders are saying that the Deutsche Börse head would be ridiculed if another takeover failed again.