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LSE plays for time as Frankfurt and Euronext slog it out

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.