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LETTER FROM WERNER SEIFERT TO CHRISTOPHER HOHN
Dear Mr. Hohn,
We have received your letter to Dr. Breuer, dated 14 April 2005, together with the related attachments. Your proposals will be reviewed by the Supervisory Board at a meeting already scheduled for Wednesday, 20 April 2005.
In the meantime, it should not surprise you to learn that I consider your actions damaging to the Company, its owners, customers and employees.
In our discussions, you have consistently demanded the immediate removal and replacement of at least 8, and at times as many as 11, of our 14 shareholder-elected Supervisory Board members. You also have rejected any solution that does not give you a majority of the shareholder-elected representatives. Finally, notwithstanding your demands, you have told us that you have "no specific strategy" for the Company and would not advocate any material changes to the strategic plans already being implemented by the Company’s Executive and Supervisory Boards.
Given the extreme nature of your demands, your unwillingness to compromise and the lack of any reasonable basis for the kind of change you advocate, we concluded on April 7 that your demands should be rejected as not being in the best interests of the Company. In the view of the Executive Board, the radical change that you propose is inconsistent with the track record of earnings growth and share price appreciation that Deutsche Börse has demonstrated.
It should be evident to you that the single greatest concern we have about your demands is that each includes the immediate removal and replacement of at least a majority of our shareholder-elected Board members. Even now, under the guise of a symbolic vote on the Board’s discharge, you are hoping to set the stage for this outcome.
But then, much of your platform remains unknown: Who will you nominate to replace Dr. Breuer? Who will you nominate in opposition to the current Board members at any subsequent EGM? What business strategy will your nominees endorse? How will that differ from the strategies pursued by the current management and Board? If you are successful, the majority of the shareholder-elected representatives will be your handpicked nominees. Do you intend to compensate other shareholders for your controlling influence over Board decisions? What are your criteria for determining which Board members should remain and which should be removed? We believe you owe your fellow shareholders and the Company answers to these and related questions before forcing the Company to go through an expensive and time consuming process.
Our concerns are underscored by your flat rejection of our proposal to achieve the kind of Board change that you advocate in the context of the Board elections scheduled for 2006, which would allow for an orderly transition in consultation with our remaining shareholders on a more reasonable timetable. No possible good can come from the immediate mid-cycle removal of at least eight competent Board members. This is neither necessary nor appropriate.
In fact, your two-phased hostile approach to oust the shareholder-elected members of the Supervisory Board and your unfounded attacks on the accountability of the Executive and Supervisory Boards are damaging to the reputation of the Company and its executives. Recently, you have escalated your attacks on the Company by contacting Supervisory Board members and employees with tales of low morale and other crises. Some of your fellow shareholders, customers and the staff of Deutsche Börse have expressed their irritation about your approach, which has the potential to undermine the business of Deutsche Börse Group. Your hostile approach has the potential to damage the reputation of your nominees as well.
Finally, we are troubled by repeated factual errors in your correspondence with us, which always are reflected in harsh reports in the media, including among other things:
- You claim to have compiled a list of qualified Board candidates. However, none of the candidates that you have named for us and that we have been able to contact have indicated a willingness to be nominated for election to the Board in opposition to our current Board members. Several have told us that they have never spoken with you and, at his own initiative, Friedrich Merz, the man you said you would appoint as Chairman, has publicly distanced himself from your hostile proposal.
- TCI’s allegations misrepresent the content of talks Dr. Breuer had with shareholders and his reports to the Board regarding these talks. In separate meetings on 9 December 2004 and, again, on 17 January 2005, to ensure, among other things, adequate flexibility for the Company in a complex bidding situation, the Supervisory Board had delegated certain aspects of our approach to the LSE to the Strategy Committee of the Supervisory Board. On 10 February, Dr. Breuer called six of the Company’s largest shareholders in the presence of members of the Company’s executive management team and its financial and legal advisors. Although some of the shareholders who participated in these calls expressed strong opposition to the proposed transaction at any price, in this initial dialogue, not all were opposed to the proposed offer terms (as published on January 27). After completing his calls with shareholders on 10 February, Dr. Breuer provided an extensive report about the content of these calls to the Strategy Committee the next day, 11 February. In addition, after the Company had received additional direct and indirect feedback from other shareholders, on 21 February, Dr. Breuer provided a written report to the entire Supervisory Board, detailing the content of his calls with shareholders on 10 February and the current situation regarding the proposed transaction. Thereafter, members of the Supervisory Board were updated, again, on all known shareholder opinions regarding the offer. On 6 March, with the consent of Supervisory Board members, we withdrew the proposed pre-conditional offer for the LSE. On 16 March, the Supervisory Board was briefed extensively on the situation and also on shareholder opinions regarding the desirability of a share buy back, which was subsequently announced on 22 March.
Viewed from any perspective, the record demonstrates that our Board was properly informed about shareholder views regarding, among other things, our bid for the LSE. Also, viewed from any perspective, the record demonstrates that the Board has been responsive to the expressed will of the Company’s shareholders.
- The service contracts of Deutsche Börse’s Executive Board members are reviewed and, if appropriate, renewed by the Supervisory Board at a point in time ten to twelve months prior to their expiry, as part of a standard process and as provided by German law. Recently, our CFO’s contract (and only the CFO’s contract) was reviewed and renewed by the Supervisory Board in accordance with this process, which reflects the Board's opinion of his excellent performance. Your version of what transpired before the Board meeting is incorrect. The contract renewal occurred lawfully and on a timely basis.
- When we met at your office some time ago, I explained why we have taken steps to preserve our right to bid for the LSE in the event that someone else bids for the LSE. At that time, you agreed with our strategy, which protects share value by maintaining our competitive standing vis-à-vis the potential actions of industry peers. However, because we took action to protect share value, you are now arguing that Dr. Breuer should be removed from the Board and that the Board’s actions in fiscal year 2004 should not be ratified. I find this behavior troubling. The record reflects that our Board will not pursue any transaction which is not supported by the Company’s shareholders. To suggest otherwise is a disservice to all shareholders.
Also, during the period beginning with our IPO in February 2001 and ended on 21 October 2004 - prior to the first public speculation about the Company’s proposal to acquire the LSE - our share price outperformed all but two members of the DAX and all but one member of the Dow Jones Industrial Average (DJIA). This performance has continued with our share price increasing by more than half in the past six months and by more than one-third in 2005. Given this performance, we wonder how a new Board could do better.
We are proud of our accomplishments, but we also recognize that there is more we can achieve. The Board’s prompt decisions to terminate its proposed offer for the LSE and to initiate a capital management program, including the distribution of significant funds to shareholders, and our proposal to form a Shareholder Committee to enhance communications between shareholders and Supervisory Board members highlight the goals that you and we share.
However, on your last goal we disagree: We believe your continuing attempts to eviscerate the Supervisory Board of Deutsche Börse are detrimental to the Company.
You can rest assured that all options with respect to your letter to Dr. Breuer will be considered by the Executive and Supervisory Boards. In this context, please allow me to reiterate that, in my role as CEO of Deutsche Börse, I have undertaken (and will undertake) all possible measures to achieve a constructive solution.
