The London Stock Exchange is to buy its Italian counterpart for €1.6 billion, a statement from the two confirmed on Saturday.
The pair said they planned to become "the world's capital market" and that together they accounted for 48 per cent of the FTSE Eurofirst 100 index of companies by market value.
They would also be Europe's leading market for electronic trading of Exchange Traded Funds and securitized derivatives, and Europe's leading fixed income market thanks to Borsa's interest in the MTS platform.
Analysts see the deal, flagged last week by sources familiar with the proposal, as largely defensive by the LSE, which has faced repeated takeover attempts as the world's exchanges respond to competitive pressures and globalised trading opportunities.
A joint statement said the transaction would be "earnings neutral to positive in (financial year) 2008 and earnings accretive by at least 10 per cent in (financial year) 2009." They said the deal would lead to annual revenue synergies of €29 million in financial year 2011, along with cost synergies and savings of about €29 million a year.
Borsa Italiana's board backed the takeover at a board meeting on Friday, and the LSE said on Saturday it was confident enough of its shareholders would back the deal.
Borsa Italiana, which had 16.23 billion shares in issue as of March 15th, is mainly owned by banks and financial intermediaries. The shareholders will get 4.9 LSE shares for every Borsa share. Its largest shareholders are Unicredito, with a 19.9 per cent stake, Intesa Sanpaolo, with 18.7 per cent, and Banca Monte dei Paschi di Siena, with 10.4 per cent.