By Noor Zainab Hussain and Esha Vaish
(Reuters) - New York Stock Exchange owner ICE (N:ICE) said it may make a rival bid for London Stock Exchange (L:LSE), raising the prospect of a takeover battle with Deutsche Boerse (DE:DB1Gn) and lifting LSE shares to a record high on Tuesday.
Atlanta-based Intercontinental Exchange Inc said it had not yet approached LSE and may not pursue a deal at all, but news of its interest pushed up share prices of exchanges across Europe on expectations of further consolidation.
LSE and Deutsche Boerse said last week that they were in talks to create a European trading powerhouse to rival ICE, which has grabbed a huge slice of Europe's derivatives market since it bought NYSE Euronext in 2013.
Their proposed tie-up is an all-share merger that would give shareholders in the German exchange a 54.4 percent stake of a new company. However, an ICE intervention could force Deutsche Boerse - or other rival bidders - to offer a bigger premium.
Shares in LSE, which had a market value of $13 billion at Monday's close, rose as much as 9 percent to 2,918 pence.
At 1518 GMT (10:18 a.m. EST), ICE shares were down about 4 percent at $228.8 on the New York Stock Exchange, while CME Group Inc (O:CME) was down 1.5 percent at $90.10 on the Nasdaq.
"It's going to force anybody that has been potentially looking at (LSE) to step up or go away," Numis Securities analyst Jonathan Goslin said, adding Euronext NV (PA:ENX), CME and Hong Kong Exchanges and Clearing (HK:0388) have also been touted as potential bidders. All three declined to comment.
Analysts said ICE would be unlikely to succeed if it opted for an all-share offer as Deutsche Boerse has done.
"Our suspicion is that ICE or CME will derail the Deutsche-Boerse-LSE love affair only by offering cash," independent research firm AlphaValue said in a note to clients.
POSSIBLE CME INTEREST
Deutsche Boerse said it had seen ICE's statement but indicated it was not looking to alter its proposed offer, while LSE confirmed it had not received any proposal from ICE.
"The company is continuing its merger talks with LSE with no change," Deutsche Boerse said in a statement.
ICE's interest was first reported by Bloomberg, which said CME Group Inc (O:CME) is also working with advisers to potentially challenge the LSE-Deutsche Boerse tie-up, citing people familiar with the matter. (http://bloom.bg/1ndmrRC)
Political and regulatory demands are expected to come to the fore if ICE or another non-European bidder makes a move.
LSE and Deutsche Boerse are already walking a political tight-rope between London and Frankfurt as they hammer out terms of their agreed merger.
However, a source familiar with the proposed LSE-Deutsche Boerse tie-up said the pair are betting that they stand a stronger chance of getting approval from European governments and regulators, than if a U.S. operator was involved.
"Deutsche Boerse and LSE are banking on political backing from Brussels, Berlin and probably also London for a 'European deal' that might support the planned EU capital markets union," the source said.
The source added that LSE Chief Executive Xavier Rolet still believes Deutsche Boerse's proposed "merger of equals" is the best option for the British exchange rather than a U.S. takeover, despite the possibility of ICE paying a higher price.
Rolet will retire if LSE's planned merger with its German rival goes ahead, the companies said on Friday.
ICE must make an offer for LSE no later than March 29. Under British takeover rules, Deutsche Boerse must either make a formal offer or announce it will not do so by March 22, unless it gets an extension from the UK mergers regulator.
The German company's shares were down 0.13 percent at 76.07 euros at 1506 GMT (10:06 a.m. EST).