Deutsche Boerse has courted LSE before

How much difference would a takeover make?

Arguably, there won't be much noticeable difference.

Pundits predict lower commission charges for dealing, a new trading system and possible link-ups with other exchanges.

Deutsche Boerse has said it intends to preserve the existing market structures of both exchanges but it has also said that, if a deal went ahead, it would aim to significantly cut the tariffs for electronic order book trading in the UK.

Euronext claims a merger with the LSE would make financial sense. Many experts claim that savings would result from a Euronext takeover because the LSE already owns the Liffe derivatives market in London.

A deal with either bidder should, theoretically, make it easier to invest in overseas companies and markets. It would also create the biggest stock market operator in Europe and the second biggest in the world after the New York Stock Exchange.

Both companies are also dangling concessions in front of the LSE.

Deutsche Boerse is prepared to offer a place on the board of a merged company to LSE boss, Clara Furse, and the finance director, Jonathan Howell. Reports also suggest that Euronext has offered to move its headquarters from Paris to London.

Will the ordinary investor won't notice any difference?

There may be some slight changes nonetheless.

As Deutsche has said, it aims to cut the cost of electronic trading and many expect more people to head to the UK market.

With more people trading, investors should get a fairer price for shares.

More investors effectively means a narrowing of the gap between the bid price (the price brokers will buy a share at) and the offer price (where they will sell). For small firms that are rarely traded, the difference between bid and offer can be as wide as 20%.

Is the takeover talk a sign that not all is well at the LSE?

The London exchange has come in for harsh criticism in the past.

A look back at its share price suggests that investors are none too impressed with its performance - spikes in its share price have been mainly confined to times of takeover speculation.

The group has also struggled to attract new companies to list: the only big names that made it onto the market this year are Premier Foods and bookie William Hill.

Air China - which listed earlier this month - was one other big coup for LSE which has been battling hard to convince Chinese companies to list in London rather than New York.

It has also had a hard time convincing major global companies to join its markets.

In Europe, exchanges are under pressure to merge and any deal would put pressure on remaining medium-sized exchanges, such as Milan, to decide their own fate as well.

Does a takeover face any hurdles?

Going on the previous merger attempt, yes.

LSE has long been seen as a target of Deutsche Boerse, and the two were all set for a merger four years ago.

However, since then, there has been a big shake-up of the UK market.

In 2000, the LSE was owned by its members who decided that a deal would not be in their interests.

Now institutional investors hold a major share in the company, which could prompt a different decision.

And as well as getting investor approval, the two companies will have to get regulatory approval for any agreement.

Competition concerns could also rear their head. Europe has only three major exchanges - LSE, Deutsche Boerse and Euronext.

At the time of the proposed Deutsche Boerse merger, LSE is thought to have feared a drawn-out wrangle with the European Commission.

So what happens now?

So far nothing - but now that Euronext has stepped into the fray, a bidding battle for LSE could break out.

Euronext has been coy, refusing to say whether its talks with LSE will lead to a definite bid, while the London exchange has already insisted that the �1.35bn German bid undervalued the business.

However, the LSE has left the door open somewhat, saying that it will continue to discuss with Deutsche Boerse "whether any significantly improved proposal could be received".

It also said talks over a prospective bid would continue with Euronext, with many experts predicting that the Paris-based group will trump its German rival's offer.

Other potential buyers could also join the race for LSE - at the time of the 2000 offer OM Group, which runs the Stockholm Stock Exchange, threw its hat into the ring, as did Euronext.

But with shares in LSE surging to record highs on news of a possible merger, its investors seem to be in favour of a deal - although perhaps at a higher price.