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Tuesday July 17, 2007

LSE purchase of Borsa Italiana; hopefull progress for IPOs

The pending acquisition of Borsa Italiana SpA by the London Stock Exchange is expected to manufacture a "pipeline of new stocks" according to the Wall Street Journal. Yet this purchase comes with several terrifying warning labels.

Many investors are uneasy with the notion of the small to midsize family owned business’ ability and willingness to go public. There are many factors impeding the movements including the consistent underachievement of the Italian market as well as its notoriety as an epicenter of scandal, such as in the Parmalat disaster of 2003. Also highlighted among the warning labels is tradition. Relinquishing such controls to shareholders is a choice many of the companies are not ready to make. Several sources nonetheless say the barriers to going public, including not only the price of entering but also underdeveloped research strategies, can be remedied by the LSE takeover.

The loss of money raised by Italian stocks in 2006 in combination with a general lack of interest by investors poses a threat to whether the LSE can operate within the Italian financial system. Yet the outpouring of success from London may inspire a change within the institution. The LSE acknowledges untapped potential and hopefully will set precedents that could translate to successful IPOs in the months ahead by gently nudging the Italian firms to take a step in the right direction.

By Francesco Lugli