The LIFFE Board has concluded that the best way of generating shareholder value may not lie solely in traditional exchange alliances but rather in combining LIFFE's assets with those who have a proven track record in the fields of technology, marketing, strategic development and financial investment. That's why we are enthusiastic to be working with Cap Gemini Ernst & Young, Battery Ventures and Blackstone with whom we have a shared vision. They bring complementary strengths that well equip us to be the first exchange to seize the opportunities in this exciting new world."
Cap Gemini Ernst & Young, UK and Ireland Chairman, Maurice Abell, said "Our arrangement with LIFFE builds on our strengths with financial markets in clearing and settlement. We are delighted to have been selected to work with a financial trading exchange, particularly after such a hard-fought race. Our enthusiasm is based on the combination of LIFFE's superior technology and trusted, strong brand. Together we are well placed to exploit substantial opportunities in financial markets and the new business-to-business e-commerce world. The global reach of Cap Gemini Ernst & Young will be of great significance in leveraging the full value of LIFFE CONNECT™ in North American and Asia-Pacific regions." Oliver Curme, general partner at Battery Ventures said "We believe that the futures industry is poised for dramatic growth and that LIFFE CONNECT™, as the world's pre-eminent exchange technology, will take the lead position in the global derivatives industry. We have been researching its market potential for over a year and have concluded that LIFFE is the best-placed exchange to exploit the potential of this new world. We feel particularly capable of bringing strategic vision, business development, market expertise and industry connections to accelerate LIFFE's current exchange business by developing new products and to expedite the success of LIFFE's new technology business."
LIFFE's Chief Executive, Hugh Freedberg, who led the negotiations leading to today's announcement said, "Over the last eighteen months we have reinvented ourselves, deploying the world's most advanced electronic trading system, LIFFE CONNECT™, and turning ourselves into a for-profit business so that now we are in a strong position to take advantage of opportunities created by the rapidly developing e-commerce business-to-business markets. We've selected organisations who share our vision and who have the capabilities best-suited to help us deliver it.
We aim to become a market leader through building two complementary businesses. Their success will be based around LIFFE's assets, which are its established expertise and experience in running a regulated investment exchange, its reputation as a trusted third party that can provide a safe and secure environment for online markets, and LIFFE CONNECT™.
Facilitated by the internet economy, companies are now buying and selling in physical markets in sectors such as energy, chemicals and electronics. Tomorrow they will need the ability to protect themselves against future price movements. We believe we can offer the services to provide just that."
The LIFFE Board proposes to create two new businesses: the existing LIFFE Exchange will continue to focus on developing its core exchange business and the new LIFFE technology business will be the catalyst for offering technology services to other exchanges around the world and for deploying LIFFE's market skills, expertise and experience in emerging on-line markets.
Through the new technology business, the LIFFE Board is proposing that Cap Gemini Ernst & Young will assist with the further development of LIFFE CONNECT™ so that it can be offered globally to other customers. Cap Gemini Ernst & Young will also be involved in the day-to-day operation of the technology business and assist in its marketing strategy.
The LIFFE Board also intends to offer Cap Gemini Ernst & Young the opportunity to take an equity stake in the LIFFE technology business prior to a flotation of that business which could take place, subject to market conditions, within a three-year period.
Boston-based Battery Ventures and the New York-based private investment group, The Blackstone Group, intend to invest between £40 million and £60 million in LIFFE (Holdings) plc ("the financing") representing between 25 and 38 per cent of the enlarged issued ordinary share capital of LIFFE. It is also intended that Battery Ventures and the Blackstone Group will be granted warrants to subscribe, in whole or part, for further ordinary shares at a price of £12 per share on the basis that their aggregate holding after the financing and exercise of the warrant should be no more than 40 per cent of the enlarged issued ordinary share capital of LIFFE. Battery Ventures will be entitled to appoint two representatives to the LIFFE Board.
The financing is to be effected by means of a placing of new ordinary shares at £6 per share to raise £60 million. The LIFFE Board intends to arrange for existing shareholders to be offered up to £20 million of the shares, at the same price of £6 per share, to be placed with Battery Ventures and the Blackstone Group. The last transfer of LIFFE's ordinary shares, prior to the announcement of LIFFE's intention to create a new technology venture, was at £3.85.
The capital to be raised through the financing, coupled with existing cash reserves in LIFFE, will enable it to support the LIFFE exchange's own product development and marketing plans, and to develop and distribute LIFFE CONNECT™ to other customers around the world. Furthermore, the arrangements envisage LIFFE employees being offered enhanced performance-based equity incentives.
The financing and the precise terms on which Cap Gemini Ernst & Young is appointed are subject to agreement of definitive documentation and regulatory and shareholder approvals (including the waiver of any obligation to make a mandatory offer under Rule 9 of the City Code on Takeovers and Mergers which might otherwise arise). It is intended that the document setting out the proposals will be sent to shareholders in July 2000. The document will contain a notice convening an Extraordinary General Meeting, which is expected to be held in August 2000, to approve the proposals.
