LSE on public bandwagon.

The London Stock Exchange (LSE) announced it was listing shares on itself in late July, raising the possibility of whether it was setting itself up to be taken over by prominent derivatives exchange, such as Sweden's OM AB, or beefing up to purchase an exchange of its own, such as Liffe.

Unlike the initial public offerings (IPO) of the Deutsche Borse (DB) and Euronext, which involved the issuing of new shares and, thus, considerable capital increases, the LSE offering simply places shares that are already traded over the counter onto the exchange's trading platform. LSE boss Clara Furse, former vice chairman at Life, says the company won't ask for a capital increase until it has a specific takeover candidate.

"We intend to have a busy year," she adds, hinting that the exchange would begin offering exchange-traded funds, covered warrants and possibly even futures.

Talk like that, combined with Furse's own background and the fact that the LSE is the only major European stock exchange not paired with a derivatives platform, has inspired speculation of a linkup or outright purchase of Life.

The LSE has [pound]150 million ($206 million) in cash and a [pound]250 million ($344 million) credit line, easily enough to buy Liffe, which is currently valued at [pound]200 million ($275 million) but probably would go for [pound]350-[pound]400 million ($482-$551 million) because that is the level at which Blackstone Group and Battery Ventures, which own nearly 30% of the exchange, would profit from their options. An LSE spokesman confirmed that Furse and Liffe Chief Executive Hugh Freedberg had met frequently over the past two months, but Liffe Chairman Brian Williamson says there is no talk of a takeover.

"Consolidation is inevitable, and a variety of scenarios make sense," says Niall O'Connor, an analyst with Commerzbank in London. "You can make a case for Liffe, especially since cross-pollination of equities and derivatives is something they lack, but you can also see LSE as a target."

On the predator side, there's OM AB. Chairman Olof Stenhammar says the blueprint he presented during last year's hostile takeover is "still a good one," but British law prohibits a second hostile takeover run within a year of the first.

"Any offers we make will have to be friendly," Stenhammar says.

Although the offering price of LSE shares is within the range of OM's offer, the Swedes have taken a 60% hit on their share price since then, dropping their market capitalization to 16 billion krona ($1.46 billion), which is about equal to that of the LSE. Still, OM's close ties to Sweden's Investor AB provide an intimidating credit line.

There also are a few less likely possibilities.

Both UBS Warburg and derivatives group Garban Intercapital, which is also a major shareholder in Liffe, have been buying up LSE shares to increase their voting base. Both also were outspoken supporters of lifting the 4.9% cap. On the other hand, spokesmen for both companies deny any intention of building a controlling interest in the exchange, and a Garban spokesman says his company has only accumulated a 3.7% stake.

Then comes Euronext, which Furse has said would make a good candidate for a friendly tie-up and which is expected to raise more than $800 million in new cash once it floats in early July. And don't forget the DB, which floated stock in February and has a $900 million war chest.

The dominoes of Europe's exchange industry are certainly lined up and ready to begin toppling, but the direction they will fall is still unknown.