(Reuters) - New York Stock Exchange owner ICE (ICE.N) said it may make a rival bid for London Stock Exchange (LSE.L), raising the prospect of a takeover battle with Deutsche Boerse (DB1Gn.DE) and lifting LSE shares to a record high on Tuesday.
The announcement by Intercontinental Exchange Inc is the latest development in a long string of mergers, bidding wars and failed deals among global exchanges.
The industry has been trying to consolidate for years amid weaker trading volumes and shrinking margins. Instead of stock trading, the exchanges have focused on more profitable businesses, such as derivatives trading and selling market data.
But regulatory concerns about the concentration of power in the hands of a few exchanges, along with nationalist wrangling, have hindered many cross-border deals.
LSE Chief Executive Xavier Rolet has been one of the most vocal advocates of consolidation. In December he laid out his vision of global exchange consolidation, saying he expected three to five "exchange powerhouses" in North America, Europe and Asia.
Whether ICE will follow through with a bid for LSE is not certain. The Atlanta-based exchange said it had not yet approached LSE and may not pursue a deal at all. Nonetheless, news of its interest pushed up share prices of exchanges across Europe.
While Deutsche Boerse is interested in combining with LSE to create a full-service trading powerhouse, analysts said, ICE's interest likely relates to two of LSE's businesses: Clearing and market data. After acquiring NYSE in 2013, ICE kept the New York Stock Exchange and its mainly European-focused derivatives unit, Liffe, but sold off other substantial parts of NYSE's business.
ICE had attempted in 2010 to buy NYSE together with Nasdaq Inc (NDAQ.O). The two exchanges placed a bid to rival Deutsche Borse's, when the German exchange attempted to buy the Big Board. Regulatory concerns ultimately foiled both Deutsche Borse's and Nasdaq's attempts.
Those concerns still carry relevance today.
LSE and Deutsche Boerse are already walking a political tight-rope between London and Frankfurt as they hammer out terms of their agreed merger. Political and regulatory demands may be even more strenuous if a non-European exchange tries to buy LSE.
CME Group (CME.O) is actively considering doing so, people familiar with the matter said. Analysts suggested that Euronext NV (ENX.PA) and Hong Kong Exchanges and Clearing (0388.HK) may also be interested. All three declined to comment.
"It's going to force anybody that has been potentially looking at (LSE) to step up or go away," said Numis Securities analyst Jonathan Goslin.
The proposed tie-up of Deutsche Boerse and LSE, which was announced last week, would be an all-stock merger. It would give Deutsche Boerse shareholders a 54.4 percent stake in the new company. However, rival bidders could force Deutsche Boerse to offer a bigger premium or bow out.
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 a proposal from ICE.
"The company is continuing its merger talks with LSE with no change," Deutsche Boerse said in a statement.
Sources familiar with the proposed tie-up said the pair are betting that they stand a stronger chance of winning approval from European governments and regulators, than if a U.S. operator were 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," one source said.
The source said Rolet still has faith in the Deutsche Boerse deal, even if a rival comes through with a richer offer, although analysts said an all-cash deal would be difficult to turn down.
"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.
Shares of LSE, which had a market value of $13 billion (£9.3 billion) at Monday's close, rose as much as 9 percent to 2,918 pence.
ICE shares were down about 3 percent at $231.26 in late trading on the New York Stock Exchange, while shares of CME Group Inc (CME.O) were up 1 percent at $92.38 on the Nasdaq.
The German company's shares ended regular trading at 76.87 euros, up 0.9 percent.
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. Rolet plans to retire if LSE's planned merger with its German rival goes ahead.
(The story was refiled to correct the spelling of Boerse in paragraphs 7, 14 and 18)
Additional reporting by Jonathan Gould and Andreas Kroener in Frankfurt and Anjuli Davies in London; Writing by Rachel Armstrong and Lauren Tara LaCapra; Editing by Savio D'Souza, Alexander Smith and Steve Orlofsky