From critic to collaborator? TCI set to win from Deutsche-LSE deal

LONDON (Reuters) - Eleven years after winning a high-profile battle to prevent Deutsche Boerse and the London Stock Exchange from merging, hedge fund TCI stands to gain if the latest round of talks between Europe’s biggest exchanges leads to a deal.

In 2005, Chris Hohn's TCI was a shareholder in Deutsche Boerse DB1Gn.DE and was convinced the German exchange's stock would suffer if it bought its British rival.

His campaign was so intense that Deutsche Boerse’s Chief Executive at the time, Werner Seifert, later published a book about the battle called “Invasion of the Locusts” in which he referred to Hohn as the “leader of the swarm”.

This time, though, TCI owns a stake in the London Stock Exchange (LSE) and has done so for well over a year, meaning it stands to gain from the British exchange’s surging share price.

TCI only revealed a 3.07 percent stake in the LSE LSE.L publicly on Feb. 23 - the day the proposed deal was announced and when the threshold for share ownership disclosure dropped.

However, an investor letter from the end of 2015, seen by Reuters, shows TCI started to buy into the LSE in late 2014.

TCI, worth $11 billion (£7.9 billion) at the end of last year, has since upped its stake - to 3.25 percent a day after the announcement and to 3.28 percent on Thursday, filings show.

TCI’s LSE stake added 1.2 percent to the fund’s gross performance in 2015, the letter to investors showed, and Hohn told them it held “good potential” over the next two to three years.

One of the drivers for that was likely to be industry consolidation over the next 12-18 months, the letter said, as “growth-starved incumbents” may be looking to expand in data services and central clearing - two of the LSE’s strengths.

Whether Hohn was expecting the LSE to be the target is not clear, nor is his next step - especially given the 14 percent premium proposed by Deutsche Boerse is not excessively generous.

A spokesman for TCI declined to comment on the firm’s stake or its view of the planned merger when contacted by Reuters.

The next investor letter is not due until the end of the first quarter.

Those expecting Hohn to climb back into the ring and scupper the tie-up again may be disappointed given the proposed deal has already helped to cushion a tough start to the year for TCI.

An investor in the fund said it was down 8.4 percent in January, while February “was not looking great either”, meaning a 22 percent jump in LSE shares this week will have helped.

Reporting by Maiya Keidan, Simon Jessop & Anjuli Davies; Editing by Mark Potter