Euronext looks like the underdog in the battle to acquire London Stock Exchange. On every financial measure, Deutsche Börse is between 80% and 100% bigger. The Frankfurt exchange also has cash of about e500 million, versus Euronext's e200 million. If Deutsche Börse offered £1.5 billion ($2.9 billion) in cash for the LSE, 600p a share, could Euronext stay in the game?
It could – but at a stretch. The French-led exchange would have to tap the bond markets for as much debt as possible. If Euronext wanted to retain a single A credit rating it could probably raise about £660 million, roughly 2.5 times its ebitda combined with the LSE's. Were it content to drop to BBB, it could raise even more – 3.5 times ebitda, £935 million. After allowing for £140 million cash, that still leaves a shortfall of £425 million to £700 million. Euronext would therefore have to tap its own shareholders. With a market cap of e2.7 billion that would be a lot – but possible.
However, there would be costs. If Euronext borrowed as much as it could, accepting the drop to BBB, its cost of funding would exceed Deutsche Börse's.