DTCC and LCH.Clearnet are continuing to work on the due diligence towards completing a definitive agreement of the proposed merger between our companies, initially announced on October 22, 2008.
Comments by industry observers regarding a second potential bidder have unfortunately overlooked or mischaracterised key elements of our proposed merger with LCH.Clearnet. We would like to clarify our position:
- The merger we announced jointly with LCH.Clearnet would create a European holding company (LCH.Clearnet HoldCo) that would have a governing Board made up of European firms and be led by a highly regarded senior management team of Europeans. The European operating subsidiaries would in turn be subject to local regulatory supervision and would have operating centres in the U.K. and Eurozone;
- The development and delivery of European services would be driven by European users, consistent with the operating model of our businesses. The European Board, representing our customers (financial firms) who are the users of our services, would always make the decisions on the priorities and types of capabilities we deploy. For global businesses such as derivatives, appropriate governance structures and processes would be established to ensure appropriate oversight and prioritisation;
- Contrary to news reports about U.S. ownership/influence, the transaction we proposed would include a rebalancing of ownership interest reflecting usage of LCH.Clearnet services and representation on an LCH.Clearnet HoldCo Board. In addition, the Global Board of Directors will have both representation of LCH.Clearnet management and European firms in the overall governance structure of the parent organisation. European firms would play a key role in deciding our future global services;
- As an industry-owned utility, DTCC only exists to serve the needs of the financial firms who make up its user base. Since increasingly our customers are global financial institutions, many headquartered in Europe as well as the U.S., the characterisations about DTCC ownership just do not apply; - The merger proposal aims to create a user-owned, user-governed model and to help LCH.Clearnet move from a “for profit” to an “at-cost-based structure” comparable to DTCC within three years;
- The aim of our proposal with LCH.Clearnet is to leverage the expertise and capabilities of two respected leaders in clearing and clearinghouse services to extend further cost savings to our customers, enhance economies of scale and IT synergies, create more efficient collateral management and deliver a wider range of services across a growing array of asset classes;
- Our goal is to create, for the first time, a common support infrastructure for Europe and the U.S. that can help mitigate risk, create greater efficiency and allow financial firms to seamlessly extend their services to investors on a cross-border basis;
- There has been industry comment that DTCC’s bid undervalues LCH.Clearnet but this logic is more suited to a contest by a for-profit company seeking to gain competitive advantage at the expense of others, and which will charge increased fees to satisfy the needs of shareholders. Our proposed merger with LCH.Clearnet is solely focused on leveraging critical mass and economies of scale to reduce costs for all users.
Please find below the link to the LCH.Clearnet/ DTCC proposed merger announcement on October 22, 2008:
http://www.dtcc.com/news/press/releases/2008/dtcc_lch.clearnet.php