LSE in discussion with Borsa Italiana over merger plans

A pan-European merger between the London Stock Exchange and the Milan-based share market Borsa Italiana was believed to be on the cards last night.

A statement from the LSE said it was "in discussions to establish whether a merger can be agreed". According to sources, any deal would be structured to leave some operating autonomy to the Milan authorities.

Massimo Capuano, the chief executive of Borsa, is expected to outline the plan to his board tomorrow.

Borsa has been seeking a partner to strengthen its position in European trading for some time. It is understood to have flirted with an approach to the LSE late last year. However, at the time the LSE had its hands full seeing off a hostile bid from Nasdaq.

With pressure mounting on stock exchanges globally to merge in order to reduce costs and speed up the execution of transactions, Borsa has been in talks with both the pan-European stock exchange operator Euronext and Deutsche Börse.

Borsa Italiana and Euronext jointly own MBE, which controls MTS, a European bond-trading platform. Borsa has until 4 July to exercise an option to buy the remaining 51 per cent not already owned.

Borsa Italiana has been operating since January 1998, having been privatised the previous year. The value of groups listed on the exchange is about $900bn (£452bn) and includes well-known names such as Fiat, Juventus, Pirelli and Benetton.

Raffaele Jerusalmi, the executive director, said recently: "From our point of view, what is important is that we do a deal that gives value to shareholders and clients. We are constantly watching the situation and we hope we can find a good solution for us in what is an exciting period of change in the European exchange industry."

Last month, the LSE's chief executive, Clara Furse, said the exchange was "evaluating transaction opportunities".

She was commenting after Nasdaq, which retains a 29 per cent stake in the LSE, achieved its ambition of pushing into Europe with the takeover of the Nordic exchange operator OMX.

By number of listed companies, the combined Nasdaq/OMX exchange will be the largest in the world, acting for companies such as the Swedish car maker Volvo, Microsoft and the Finnish mobile phone operator Nokia.

There is speculation that Nasdaq may use its greater firepower to launch a fresh bid for the LSE when the ban on renewing hostilities ends early next year.

Shares in the LSE closed down 21p at 1366p.

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