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The Board of the London Stock Exchange continues to recommend that shareholders reject the OM offer for the following principal reasons: OM's offer represents a terminal loss of influence for LSE shareholders over the London Stock Exchange; OM's offer fundamentally undervalues the London Stock Exchange's pre-eminent market position, its financial strength and its prospects; OM's 'business proposition', based on technology, offers no clear benefits and would impose unquantified switching costs.
In a letter to shareholders, Don Cruickshank, Chairman of the London Stock Exchange, said: 'The London Stock Exchange is a successful and valuable business - the leading European and the most international of all equity exchanges. We believe that OM's offer is an attempt to buy your company on the cheap, predominantly using new OM shares, which are of uncertain value. Under OM's offer terms, London Stock Exchange shareholders, in aggregate, would own just 18.5% of OM's enlarged fully diluted share capital, representing a terminal loss of influence for LSE shareholders.'
The document highlights the following key points about OM and its offer:
Terminal loss of influence
OM's shares are tightly controlled
OM's board includes members who either themselves hold, or represent shareholders who hold, 40% in aggregate of OM's issued share capital
the Swedish State owns 9.5% of OM's issued share capital, having recently increased its stake
the Wallenberg family own 15.3% of OM's issued share capital through an investment vehicle, Investor
OM is incorporated, headquartered and has its primary listing in Sweden and has made no commitment to change any of this.
The London Stock Exchange - a successful and valuable business
The London Stock Exchange is already the pre-eminent European equity exchange and the most international equity exchange worldwide, with nearly 500 listings by companies from 63 countries.
London's equity market interests amount to 34% of the Eurotop 300 by market capitalisation
the London Stock Exchange serves companies well, with successful segments, such as AIM and techMARK, attracting international investors; the market capitalisation of AIM stocks has increased from £2.4 billion (as at 31 December 1995) to £17.3 billion (as at 31 August 2000); the AIM index out-performed the world's key indices in 1999, with growth of over 140%; techMARK companies have raised nearly £8 billion since launch in November 1999; the number of techMARK companies has grown from 180 to over 230
The financial community chooses London because of its; international visibility, with over 104,000 terminals worldwide displaying London Stock Exchange data - an annual increase of 21%; investment in technology ensuring sufficient capacity, which has supported a five-fold increase in SETS orders since 1997, with the average number of daily bargains now running at 140,000.
Business success has led to financial success;for customers, lower prices in real terms for equity trading; maintaining turnover growth in all major revenue streams; strong balance sheet, including cash and investments of £200 million (as at 31 March 2000); high current levels of activity.
The derisory offer: how sustainable is OM's current share price? Around three-quarters of OM's offer is in new OM shares of uncertain value; the OM shares that London Stock Exchange shareholders are being offered are currently trading at 85 times historical earnings and at a share price of over four times the level of one year ago.
OM's share price has been volatile; it currently appears to include a significant element of 'hope value' in Jiway; an untested business proposition only scheduled to start operations in November 2000; Jiway is 40% owned by a single US investment bank and is expected to be initially loss-making.
OM's unattractive business proposition adds nothing.
London Stock Exchange already has lower trading charges than OM - for larger trades and also for small transactions, even after discounts.
Would LSE shareholders and customers really benefit from switching to OM technology? Unknown migration costs; offers no clear cost or functional advantage; lacks scale in equity trading compared with the London Stock Exchange; has a history of delayed roll-outs and a poor record of system availability.
The 4.9% shareholding limit
The 4.9% shareholding limit is an issue which must be addressed in the context of any City Code offer for the London Stock Exchange. At the time of demutualisation, the Exchange made clear that an interim period of stability was required while the Exchange's business evolved and the consequences and benefits of these changes had time to take full effect. It was for this reason, and to ensure continued diversity of ownership, that the Board proposed that the maximum shareholding by any group should not be more than 4.9%.
The Board considers that the reasons for a period of stability, and hence the rationale for the 4.9% limit, remain valid. If the 4.9% limit were removed completely, a purchaser could acquire a blocking shareholding and act in a manner inconsistent with the interests of customers and shareholders as a whole.
However, OM's offer cannot proceed without the waiver of this 4.9% limit and they have asked London Stock Exchange shareholders to requisition an EGM which would remove it completely and also remove the normal provisions enabling the London Stock Exchange to require the disclosure of beneficial interests in its shares.
The Board will not hide behind the 4.9% limit to thwart OM's bid, or any other City Code offer. Accordingly, an EGM has been convened for Thursday 19 October 2000 to allow shareholders to vote on a resolution to waive the 4.9% limit in respect of any City Code offer which is declared wholly unconditional. The Board believes that, in these particular circumstances, this is a matter on which shareholders should vote without being influenced by a Board recommendation.
