Deutsche Borse On The Prowl

With the LSE deal dead, what will CEO Werner G. Seifert do next?

It has been a tough few weeks for Deutsche Borse CEO Werner G. Seifert, and there were more than a few people who thought--even hoped--that his job was in danger. On Sept. 11 the Borse's supervisory board ended that speculation by extending Seifert's contract until 2006. But Seifert, 51, still has plenty of career worries. His plan to merge his Frankfurt-based exchange with the London Stock Exchange to create a market called iX was already in danger when he was reappointed. Two days later it collapsed when the LSE pulled out. Shareholders and customers had complained that the merger plan was vague, its promised savings uncertain.

To add to Seifert's woes, a top Deutsche Borse aide just quit, and critics faulted Seifert's authoritarian style. Electronic exchanges such as Jiway Holdings and Tradepoint Financial Networks threaten to make traditional bourses like his obsolete. Seifert is under intense pressure to quickly devise another way to streamline Europe's financial markets and preserve the Deutsche Borse franchise he worked so hard to build. Otherwise, the exchange could be left on the sidelines. "He needs to find an exit," says a Seifert critic in Frankfurt. "But what exit is there?"

Seifert's next step isn't certain. But nobody expects the pugnacious executive to just sit around. After bringing the provincial Frankfurt exchange to global prominence in his seven years as CEO, Seifert is still determined to place himself at the center of a Europe-wide consolidation. He's certain to be drawing up Plan B--together with Deutsche Bank CEO Rolf E. Breuer, a friend and co-chairman of DB's supervisory board.

Now that the LSE has formally withdrawn from the planned merger and officially rejected a $1.16 billion hostile bid from Sweden's OM Group, Seifert actually has some room to maneuver. Frankfurt may launch its own takeover bid, bettering OM's offer and, more important, providing a clearer vision of the benefits of a pan-European exchange. Says a senior investment banker in London of the LSE: "The shareholders and the customers are the same and they are far more concerned with getting the right solution than getting the most money for their shares."

In fact, Seifert may have an easier time selling his plan now that he doesn't have to mask it as a merger of equals. For one thing, he could include DB's clearing and settlement unit in the deal; the back office operation is where the real savings lie. Or, Seifert may leave the LSE to its own devices for now. There's speculation that DB could seek a merger with Tradepoint, the London-based electronic exchange backed by such financial titans as Goldman, Sachs & Co. and Deutsche Bank. That would link Frankfurt's high trading volume and deep customer base with Tradepoint's clout among global investment banks. And it would give both DB and Tradepoint a boost against OM's competing exchange, Jiway, which will start up in November with 6,000 global stocks in its quiver. But Seifert being Seifert, he could go it alone, launching his own electronic trading system.

There's talk that Seifert might seek an alliance with Nasdaq that could lead to a merger. Whatever he does, Seifert hasn't much time. Rivals such as Amsterdam-based Euronext or Nasdaq could bid for the LSE.

Meanwhile, technology threatens Seifert and his competitors. Analysts expect regional stock exchanges to become increasingly irrelevant as a global online trading system comes into being. Indeed, mergers between national exchanges "are only the starting point," says Robert Mutschler, an online- banking analyst at FORIT in Frankfurt. "In two years we'll have strong oligopolies" that will dominate segments of equity trading. And in five years, "we will have one big global stock exchange," says Tony Whalley, an OM board member. Seifert is under no illusions. Electronic trading systems "are a massive threat to the financial centers," he told a group of Frankfurt's financial elite on Sept. 5.

Seifert, a pipe-puffing Swiss native with an ear for jazz, has already proven himself a clever strategist. He saw the importance of information technology early on. In the mid-1990s, Eurex, a joint venture of DB and the SWX Swiss Exchange, used electronic trading to steal dominance in derivatives trading from London's LIFFE. The Frankfurt exchange's Xetra system, developed under Seifert, is widely regarded as Europe's best electronic-trading platform.

Seifert has had less success as a dealmaker, though. He has been unable to create a workable alliance with Paris and had to watch as it joined with the Amsterdam and Brussels exchanges to create Euronext. Jean-Francois Theodore, CEO of ParisBourse, says Seifert's acerbic manner was one reason their alliance failed. The scotched London merger marks the second high-profile attempt to link the two exchanges. (The LSE called it off after Frankfurt declared that it was "keeping all of its options open"--a clear reference to the possibility of launching a hostile bid.)

In fairness, however, iX never had enough support in either Frankfurt or London. Politicians in both cities fretted about the loss of jobs and prestige if the other became Europe's financial capital. Companies felt slighted by plans to list blue-chip stocks in London and tech shares on Frankfurt's Neuer Markt. Corporate leaders such as Max Dietrich Kley, a board member of chemical maker BASF, predicted a bureaucratic nightmare as companies grappled with conflicting securities regulations in Britain and Germany.

AWKWARD TIMING. But critics also say Seifert's stubbornness was just as big an obstacle. Until recently, his rough edges were smoothed out by key aide Reto Francioni, who helped turn the Neuer Markt into Europe's premier venue for new tech issues. But the polished Francioni left in April to head up Consors Discount-Broker. Then Jorg Franke, CEO of Eurex, announced his resignation on Sept. 11. At the least, the timing was awkward. Many assume Franke grew weary of Seifert's trying personality.

But there's a familiar irony to Seifert's situation: As much as critics fault his style, they can't name anyone with the vision and endurance to take his place. "The only chance we have [now] is with a person like him," says Ann-Kristin Achleitner, who wrote a book on stock markets with Seifert. "You need to be energetic and you need to be able to take the frustration and fight on." Right now, no one doubts that Seifert will do just that.