UPDATE 1-LSE and Singapore exchange in merger talks - report

Thu Jul 19, 2012 7:15pm EDT

* Merger could value combined company at $11 bln-report

* SGX takeover of smaller LSE seen most likely

* Potential deal would be latest in global exchange consolidation

LONDON, July 19 (Reuters) - The London Stock Exchange Group is in talks with the Singapore Exchange about a potential 7.2 billion pound ($11.3 billion) merger, the Daily Telegraph reported, a deal that would create the world's third-largest exchange group.

The newspaper said the chief executive of LSE Group, Xavier Rolet, has held a series of informal talks with SGX Chief Executive, Magnus Bocker, about a potential merger.

The structure of any potential merger is unclear but the paper speculated that SGX would take over its British rival because of its larger market capitalisation of 4.4 billion pounds against LSE Group's 2.8 billion pounds.

The talks, which are still in their preliminary stages, are focused on the benefits of merging the two exchanges amid continued consolidation attempts in the sector, according to the article published on the Telegraph's website on Thursday.

SGX was not immediately available for comment.

Banking sources cited by the Telegraph said any form of formal offer was still some time away, but market rumours suggested a takeover would be in the region of 13.50 pounds per LSE Group share.

A deal combining the two bourses would create the third-largest exchange group in terms of trades, behind NYSE Euronext and Nasdaq OMX.

SGX and its acquisitive CEO Bocker made an $8 billion bid for Australian stock exchange operator ASX Ltd, but the attempt was dropped in 2011 after opposition from the Australian government.

A combination of the SGX and the LSE was touted as a potential alternative at that time and the two have since been building closer ties.

A consortium including LSE and SGX bid for the London Metals Exchange earlier this year but failed to get past the first round. The LME was eventually bought by Hong Kong Exchanges and Clearing Ltd (HKEx), the operator of Asia's bourse, for $2.2 billion.

Earlier this month, SGX and LSE signed an agreement to allow the pair's largest stocks to be traded on both bourses, increasing access for investors and boosting liquidity.

Mergers between exchange firms around the world have been happening thick and fast in recent years as traditional operators try to fend off growing competition from alternative trading platforms and "dark pool" operators.

Under previous CEO Clara Furse, the LSE fought off a handful of unwanted takeover offers in two years to remain Europe's oldest independent bourse.

SGX's Bocker made his name stitching together seven Nordic bourses to create OMX, later sold to NASDAQ, before moving to Asia.

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