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Don Cruickshank, Chairman of the London Stock Exchange, said: "Despite the revised terms of OM's Offer, the Board of the London Stock Exchange continues to advise its shareholders to reject the offer on the basis that it represents inadequate value. For customers, OM's proposal still offers no proven benefits.
"The third defence document sets out how the London Stock Exchange intends to build its business from the strong foundations that already exist. Beyond these initiatives, there are a number of important strategic issues on which full consultation with our shareholders and customers is required before longer-term decisions can be made about participation in European rationalisation and the globalisation of capital markets. This consultation process has already started on an informal basis. The more formal process, centred around the Exchange Markets Group, will start as soon as the Offer Period has ended."
Building the business
The pre-requisite for future success is to sustain and build on the strengths of the London Stock Exchange. Our immediate initiatives to build the business are to: Give greater focus to customer services; Further internationalise the London Stock Exchange's services; Continue to enhance market infrastructure; and Implement an effective consultation process.
The third defence document highlights the following key points about the London Stock Exchange and its future development
The London Stock Exchange will develop its business along three lines
Expanding its service offering, the London Stock Exchange will>/b>
Continue the development of its core trading systems through enhancements such as the UK central counterparty; Focus on services to support the retail community; Develop further information products for our customers; Support clearing and settlement services to increase the overall efficiency of the central market.
Expanding its product range, the London Stock Exchange will
Develop further equity related products such, as "extraMARK" with its existing Exchange Traded Funds; Evaluate other financial and non-financial products, including e-commerce and business-to-business areas
Expanding geographically, to build the business, the London Stock Exchange will
Develop AIM and techMARK as international markets; Develop a pan-European market for liquid equities; Increase the level and spread of remote membership; Continue to compete for global listings
The London Stock Exchange's reliable and efficient trading and information systems will underpin all of these activities
Greater focus on customer services
The London Stock Exchange will build on its existing core competences, namely: Managing robust and reliable trading systems and services; Managing the delivery of technology; Developing well-regulated markets; Adopting innovative and flexible market structures and services and Establishing and developing strong brands
The London Stock Exchange will continue to invest in and develop services provided to the UK equity markets that are key to its customers to maintain and enhance order flows, price formation and liquidity
The London Stock Exchange will achieve this by: Continuing to invest in the development of SETS and SEAQ, including capacity and network upgrades - to be implemented during 2001; Supporting the introduction of the UK central counterparty with London Clearing House and CRESTCo - due to be launched on 26 February 2001; Developing additional services to meet the needs of specific sectors of our customer community - both domestic and international, through 2001
A key objective for the London Stock Exchange is addressing the different interests of those customers seeking better, more cost effective services to support retail markets, both in the UK and internationally, and those customers seeking a broader European wholesale market
Developments for the retail community
The London Stock Exchange is therefore establishing a new Broker Services Group, headed by Chris Broad, to take specific responsibility for enhancing our services for the retail community
The Broker Services Group will be provided with dedicated financial and executive resources to pursue a range of specific initiatives
Pan-European market
The London Stock Exchange intends to work in close co-operation with the leading market participants to develop a pan-European market: The London Stock Exchange can create a pan-European market by admitting the leading European equities to trading on its existing systems; For such a pan-European market, the London Stock Exchange would extend its current arrangements with London Clearing House and CRESTCo to provide a central counterparty and clearing and settlement services
Information services
The London Stock Exchange already has a successful track-record in creating and distributing on-line information products tailored to the needs of its diverse customer base. It will continue to develop competitively priced information products that meet the needs of customers by : Developing information services for companies, allowing them greater access to information about the trading of their shares and for private client brokers, enabling them to meet the needs of their customers; Enhancing its systems capacity and networks to allow further extension of the reach and scale of access to its information services and Evaluating ways to generate additional revenues from third parties using capacity in its systems and networks to support their activities
Further internationalisation of services
The London Stock Exchange already has, in techMARK and AIM, the largest growth / technology market in Europe: techMARK and AIM, in aggregate, include 668 companies; techMARK and AIM, in aggregate, have more than twice the number of companies than on the next largest European growth / technology market
The London Stock Exchange is committing to reposition techMARK and AIM as international markets by : Increasing promotional spend significantly; Competing for new members and issuers from other European jurisdictions; Continuing to compete outside Europe for issuers, building on existing successes and Providing broader trading access to the London market for non-UK brokers
The London Stock Exchange is developing plans, including the identification of priority overseas markets, to promote its established international position through further investment
Continuing to enhance market infrastructure
UK central counterparty
This initiative to introduce a central counterparty is scheduled for 26 February 2001
Stamp Duty
The London Stock Exchange will continue to lobby the UK Government for the abolition of stamp duty
Dematerialisation
The London Stock Exchange believes that dematerialisation is a critical factor in the effective and efficient operation of a cohesive market structure and will work with the UK Government, CRESTCo, APCIMS, intermediaries and market users to ensure its wider adoption
Technology - the London Stock Exchange already offers its customers efficient, reliable and scaleable systems
Since 1994, the London Stock Exchange has invested over £185 million as part of its long-term investment programme in technology
The London Stock Exchange is continuing to invest in trading systems to increase capacity and functionality and, as part of its long-term investment programme, will double its existing trading capacity and enhance its data network
The London Stock Exchange is also developing its established relationships with leading international information vendors to provide remote access to its trading systems
The London Stock Exchange may also consider partnerships or joint venture arrangements which enhance its delivery capability, particularly in technology
Effective consultation process - the London Stock Exchange aims to provide efficient markets for all its customers: whether domestic or international, wholesale or retail, issuers, intermediaries and investors
The London Stock Exchange believes that the diversity of markets is a key element of London's strength as Europe's leading financial centre and means there is a need for consultation to ensure the London Stock Exchange can meet the needs of this diverse customer base
The London Stock Exchange's formal consultation process will be based on a new structure which will have at its core the Exchange Markets Group ("EMG"). EMG will be chaired by Don Cruickshank
Representation on EMG will be drawn broadly from the market as a whole, including retail brokers, investment banks, corporate advisers, investing institutions, issuers and other key groups
The London Stock Exchange's new consultation process is designed to ensure that strategic initiatives reflects the needs of customers and shareholders
Balance sheet strength, property strategy and intentions on listing
The London Stock Exchange believes that as it develops following demutualisation it is appropriate, in line with other international stock exchanges, to maintain a strong balance sheet with significant cash balances in particular to maximise strategic flexibility during the current period of unprecedented change
If circumstances change, the London Stock Exchange will consider appropriate uses for its net cash balances in the best interests of shareholders
The London Stock Exchange intends to vacate the Exchange Tower and relocate to new corporate headquarters by the end of 2004 at the latest, which has been selected to coincide with the break options and expiry dates of existing leases
The London Stock Exchange's immediate priority is to focus on building the business but it nevertheless envisages moving to a full listing in due course and will keep the timing of any such move under review
OM's inadequacies for shareholders and customers
OM's revised offer provides London Stock Exchange Shareholders with two unattractive alternatives
EITHER: even more new OM shares of uncertain value
OR: some cash and even less influence
Under OM's Majority Cash Alternative, London Stock Exchange Shareholders, in aggregate, are being offered only 14.9% of OM's enlarged fully diluted share capital before the rights issue
OM intends to dilute further the interests of London Stock Exchange Shareholders by launching a rights issue to raise up to £594 million in which accepting London Stock Exchange Shareholders would not be entitled to participate
London Stock Exchange Shareholders are being asked to accept new OM shares of uncertain value but, as a result of the rights issue, will not know
The number of OM shares they will end up with
The percentage of OM's share capital they will own, although it could well be less than 14.9% in aggregate The resulting capital structure of OM
OM's Offer - uncertainty, risk and loss of influence
