The London Stock Exchange is to buy its Italian counterpart for 1.6 billion euros ($2.15 billion), the two exchanges confirmed in a statement on Saturday, the latest step in a global nsolidation of exchanges.
The LSE and Borsa Italiana said they planned to become "the world's capital market" and that together they accounted for 48 percent of the FTSE Eurofirst 100 index of companies by market value.
They would also be Europe's leading market for electronic trading of Exchange Traded Funds and securitized derivatives, and Europe's leading fixed income market thanks to Borsa's interest in the MTS platform.
Analysts see the deal, which confirmed details from sources on Friday, as largely defensive on the part of the LSE, which has faced repeated takeover attempts as the world's exchanges respond to competitive pressures and globalised trading opportunities.
Some viewed it as a move to make it harder forthe Nasdaq tock Market to buy the LSE. The enlarged group will be worth 3.9 billion pounds.
Borsa Italiana's board backed the deal on Friday despite an approach from NYSE Euronext, the world's biggest stock market operator, with its own takeover offer, sources familiar with the matter said earlier this week.
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A joint statement said the transaction would be "earnings neutral to positive in (financial year) 2008 and earnings ccretive by at least 10 percent in (financial year) 2009."
They said the deal would lead to annual revenue synergies of 29 million euros in financial year 2011, along with cost synergies and savings of about 29 million euros a year.
Borsa Italiana shareholders will get 4.9 LSE shares for every Borsa share.
The Italian exchange, which had 16.23 billion shares in issue as of March 15, is mainly owned by banks and financial intermediaries.
Its largest shareholders are Unicredito, with a 19.9 percent stake, Intesa Sanpaolo, with 18.7 percent, and Banca Monte dei Paschi di Siena, with 10.4 percent.
The LSE said it was confident its shareholders would back the deal.
The companies said they plan to change the name of the combined group to reflect its international profile, and will be listed on Borsa Italiana as well as in London.
The exchanges will maintain separate legal and regulatory entities and keeping their existing brands and they confirmed that of 12 board members, seven will come from the LSE and five from Borsa Italiana.
LSE Chairman Chris Gibson-Smith and LSE Chief Executive Clara Furse will have the same positions in the enlarged group.
The two exchanges said the deal will couple Borsa Italiana's strengths in Italian cash equities, derivatives, securitised derivatives, fixed income products and post-trade services with the LSE's strength in UK and international equities.
Stefano Micossi, head of Assonime, which represents Italian listed companies, welcomed the deal.
"The deal will give great monetary satisfaction but also (in contrast with the Euronext solution) gives a higher governance position for Italy, with a recognition superior to the share weight.
"Some minority shareholders, who wanted to cash in their investments in the past few months, will be satisfied, while the big banks ... will now be the protagonists of an integration process," Micossi said.