Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

InterContinental Exchange is subjecting shareholders in the London Stock Exchange to a long, cold summer. The U.S. group has said it is not making a takeover bid for its U.K. peer -- dashing the hopes of LSE shareholders for a better deal than the merger agreed with German rival Deutsche Boerse. 

LSE shares immediately suffered a 10 percent hit, though recovered some of the lost ground to hover around 25 pounds. Deutsche Boerse shares rallied more than 7 percent to about 75 euros as fears that it might engage in a bidding war against ICE fell away.

LSE shares posted their biggest one-day drop since 2008 after ICE said it wouldn't buy the U.K. exchange
Source: Bloomberg

LSE shares now trade at a slight discount to the terms of Deutsche Boerse’s merger deal. Even so, the stock is barely above its level before deal talks became public in February, which implies investors are pretty skeptical of any deal going ahead.

The language of ICE’s withdrawal statement looks partly tactical. It didn't say a deal was strategically stupid. Rather, ICE said LSE hasn’t engaged sufficiently to enable it to form a view on the merits of combining. The subtext could be: if LSE had opened up to ICE a bit more, an offer might have been or may yet be possible. 

LSE shareholders now have a long wait, both to see if the LSE can get its deal with Deutsche Boerse past regulators, and to find out whether ICE changes its mind.

Under British takeover rules, ICE can’t make an offer for six months. But there are exceptions, and one would be if LSE proactively engaged with ICE. Another would be if a new bidder emerged.

At this point, the LSE board would have to come under huge pressure from its own shareholders to break off with Deutsche Boerse now and initiate talks. If Deutsche Boerse shareholders revolt against the LSE deal, that would provide a pretext.

These are still unlikely scenarios: neither set of shareholders has an interest in sacrificing the bird in the hand for a putative deal in the bush -- the LSE-Deutsche Boerse merger is clearly better for the duo than their respective standalone futures.

Things might look different in November, the earliest point at which ICE can come back. By that time, the LSE-Deutsche Boerse deal will probably still be stuck with the competition regulators. ICE will have paid down a lot of its debt and have a much stronger balance sheet, assuming it does no other deals.

As Gadfly has argued, it is hard to believe that ICE feels comfortable with letting itself be overtaken in size by a merged LSE-Deutsche Boerse. Scale has strategic and financial value in the exchange business. A cash-and-shares deal at an industry-standard 30 percent premium would have been a big stretch for ICE at this point -- but far from impossible.

That may be an easier proposition once ICE's finances are in better shape. For now, it can proclaim M&A discipline. 

LSE shares look set to drift while investors endure the slow grind of the Deutsche Boerse proposal and wonder if ICE will ever return. In the meantime, LSE shareholders should press the the exchange's board to prove it saw little prospect of squeezing a better deal out of its friends across the pond.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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