The London Stock Exchange has submitted to Borsa Italiana a share-based take-over offer worth about 1.5 billion euros ($2 billion), a person familiar with the situation said on Thursday. The board of the LSE earlier approved the bid proposal and a Borsa Italiana board meeting at which the Italian exchange is due to discuss the offer was continuing at 1600 GMT.
A tie-up would help both exchanges keep pace with the rapid global consolidation of the industry, but the oft-targeted LSE was seen by some analysts as acting defensively to protect itself from an unwanted take-over.
An alliance between the LSE and Borsa can only take the form of a holding company comprising the two, Borsa Italiana board member Alessandro Pansa said on his way to a board meeting on Thursday, adding that he "likes the LSE idea" but that the board would consider better offers should there be any.
Borsa Italiana had been in talks with other European peers and those unrealised deals led to speculation that a merger with the LSE was not a done deal. Market watchers also expect New York Stock Exchange-Euronext and Deutsche Borse AG to come up with counter bids.
The LSE offer would value Borsa, which is owned by Italian banks, at roughly 18 times 2008 earnings, similar to the LSE's prospective 18.7 times price-to-earning ratio, but at a 21 percent discount to Nordic bourse operator OMX AB's 23 times forecast earnings, according to Reuters Estimates.
The potential offer is above the 1.2 billion to 1.4 billion euros valuation placed on it last year when the Milan-based bourse was planning a public flotation. The deal also could include cash for some Borsa investors, one of the sources said. Borsa's smaller shareholders might sell their stakes but not the larger ones such as Intesa Sanpaolo and UniCredit, Italy's two biggest banks, an industry source said.
LSE shares dropped 1.4 percent while Deutsche Boerse shares fell 1.9 percent by 1336 GMT, amid concerns the exchanges could get drawn into further expensive acquisitions. Both exchanges declined to comment. The LSE confirmed on Wednesday it was in talks with Borsa Italiana about a merger. A potential hurdle to any deal might be LSE's biggest shareholder, the Nasdaq Stock Market Inc, which holds 30 percent and has the power to block significant corporate actions.