The Board of The Nasdaq Stock Market, Inc. ("NASDAQ") today announces the terms of Final Offers to be made by Nightingale Acquisition Limited ("NAL"), a wholly owned subsidiary of NASDAQ, for the entire issued and to be issued share capital of London Stock Exchange Group plc ("LSE"). The Ordinary Offer is in cash at 1,243 pence per LSE Ordinary Share, valuing the entire issued ordinary share capital of LSE at approximately £2.7 billion and represents an enterprise value of approximately £2.9 billion (based on LSE's net debt of £284.7 million as at 30 September 2006). The B Share Offer is in cash at 200 pence per LSE B Share (plus an amount equal to the accrued dividend), valuing the entire issued B share capital of LSE at approximately £16.5 million.
NASDAQ is today making this announcement to ensure that all market participants are properly informed of the details of its Final Offers. NASDAQ has requested a meeting with LSE's Chairman to seek a recommendation of the Final Offers in advance of posting the Offer Document (which will be undertaken as soon as possible).
Highlights
An attractive offer which fully reflects both LSE's standalone prospects and an appropriate premium- NASDAQ appreciates LSE's strong standalone growth prospects. In particular, NASDAQ recognises the strong growth in SETS volumes of 56 per cent. year-on-year for the six months to September 2006, the strong new issue activity currently being experienced and the growth in related activities
- This potential needs to be set against the fact that LSE's share price has risen 216 per cent. over the past two years and 103 per cent. over the past year vs. net income growth of 75 per cent. and 50 per cent. respectively. NASDAQ believes this potential, as well as the significant synergy benefits of a combination, are fully reflected in its offer price
- An offer price of 1,243 pence per LSE Ordinary Share represents:
- a 54 per cent. premium over the Closing Price on 10 March 2006, the Business Day immediately prior to LSE's announcement that it had received a pre-conditional approach from NASDAQ, adjusted for the LSE Capital Return;
- a 40 per cent. premium to NASDAQ's indicative offer price of 9 March 2006 as adjusted for the LSE Capital Return; and
- a multiple of 27.9x adjusted earnings for the 12 months to 31 March 2006 and a multiple of 24.9x consensus earnings forecast for the 12 months to 31 March 2007
- NASDAQ will today submit a filing to the OFT in relation to the Transaction and does not expect the Transaction to give rise to any significant antitrust issues
- The Transaction is not subject to any other formal regulatory approvals nor does it require NASDAQ shareholder approval
- The Transaction is expected to complete in the first quarter of 2007
- The Final Offers will not be revised except that NAL reserves the right to revise the Final Offers: (i) upon the recommendation of the LSE Board; or (ii) if a firm intention to make a competing offer for LSE is announced, whether or not subject to any preconditions
Overview of transaction rationale
NASDAQ and LSE are both pre-eminent equity markets in their respective countries. NASDAQ believes that bringing together the two organisations would present listed companies, traders and investors with a leading global equity market place, based on dynamic industry leadership. A transaction presents the potential to create:- the leading global, cross-border equity market platform giving issuers the ability to dual-list simultaneously in London and New York;
- the leading global exchange by number of listings featuring over 6,400 listed companies with a total market capitalisation of approximately GBP6.3 trillion (USD11.8 trillion) presenting a strong platform for companies of all sizes and the natural choice for international issuers;
- the most active global equity exchange, with an average daily volume of 7.4 billion shares traded, 5.5 million average daily bargains and an average daily value traded of approximately GBP41.5 billion (USD75.6 billion);
- significant efficiencies which would benefit the users of both platforms, and fully execute on the efficiencies that both companies offer their market participants; and
- a combined entity well positioned to lead further consolidation and compete effectively with any transatlantic or European combination.
- The combined entity will have the ability to offer a broad choice of efficient capital raising solutions to companies at multiple stages of development, from private and early stage firms via AIM and Portal, to large IPOs on the respective main markets. Listed firms across all market segments from AIM to Global Select will benefit from leveraging the technology and operational expertise of both businesses
- NASDAQ's transaction speeds are amongst the fastest in the industry (delivering sub-millisecond executions within the matching engine) and its infrastructure has the capacity to process approximately 10 times the current daily average volume of 2.0 billion shares traded. NASDAQ will work from its track record of combining systems efficiently and fairly to deliver leading technologies in order to further drive the performance, security and reliability of LSE's markets
- NASDAQ has an established track record of reducing operational costs while simultaneously improving the customer experience. NASDAQ has reduced average execution fees by 55 per cent. since 2002. NASDAQ believes one of its primary responsibilities is to reduce the total cost of trading for market users whilst providing superior trading capabilities with a focus on client needs. As a demonstration of this focus, NASDAQ commits not to increase standard broker-dealer tariffs for at least three years. Additionally, NASDAQ will leverage its experience in service improvement, price leadership and product expansion for the benefit of the London market and will always be prepared to compete creatively and aggressively for broker-dealer business
- NASDAQ has demonstrated its belief that it must improve both the trading experience and the "listing service" to remain competitive. In a highly competitive domestic market, NASDAQ has a 99 per cent. retention record with listed companies since 2001 and has broadened its range of support services geared to help companies improve and leverage their public company status. NASDAQ has achieved this through both organic expansion and acquisition. It will look to broaden the range of products offered to both issuers and data users in the London market in co-operation with LSE's existing product set
- Over the medium term, NASDAQ expects that a combination with LSE will bring substantial visibility and liquidity benefits to both issuers and investors. Subject to regulatory parameters, investors may also benefit from an increased potential for portfolio diversification. Enhanced access of US investors to LSE listed stocks and of UK investors to NASDAQ listed stocks should lead to an increase in trading activity and liquidity, reducing the cost of capital for issuers
- The two strong, yet distinct, brands of LSE and NASDAQ will together yield stronger competitive benefits to both the London and the New York financial centres
- NASDAQ respects the strengths of the London market and intends that LSE's operations should continue in a manner consistent with current practice
- The existing market model, including the Main Market and AIM, will continue to be actively supported and promoted to their fullest potential
- The combined entity will support open post-trade architecture and will look to promote competition in clearing and settlement for the benefit of users
- The LSE brands will be maintained and promoted
- LSE will continue to be run as a Recognised Investment Exchange ("RIE") regulated solely by the UK Financial Services Authority ("FSA")
- NASDAQ has held detailed discussions with the FSA and is confident that, following the Transaction, LSE will be able to meet its obligations as an RIE
- LSE will continue to have its own independent board with a majority of independent non-executive directors
- User representation will be bolstered by the appointment of user representatives to the independent board, which will have sole discretion over the regulatory regimes applicable to the companies listed on LSE's markets and sole discretion for determining and ensuring compliance with the FSA's Recognition Requirements Regulations
- NASDAQ will establish a London Oversight Committee, comprised of Board user representatives and an independent Chairman, to retain veto rights over proposed changes to LSE listing standards and location of the main RIE operations
- NASDAQ appreciates and supports the proposed changes to the Financial Services and Markets Act announced by the Economic Secretary to the Treasury, Ed Balls, and believes its proposals are entirely consistent with this legislation
- LSE will continue to be promoted as the primary destination for listing and trading UK stocks
- LSE and NASDAQ will jointly be promoted as destinations for international listings and each will be developed to realise its full potential
- LSE's headquarters will be maintained in London, and the location of the main RIE operations will be subject to the veto of the London Oversight Committee which will remain independent of NASDAQ
- NASDAQ Board meetings will regularly be held in London
- NASDAQ intends to seek a secondary listing in London as soon as practicable following the completion of the Transaction
- Following the Transaction, the combined entity will review the branding of the parent company with the intention of arriving at a brand which reflects its international reach and expertise
* The Final Offers will not be revised except that NAL reserves the right to revise the Final Offers: (i) upon the recommendation of the LSE Board; or (ii)if a firm intention to make a competing offer for LSE is announced, whether or not subject to any preconditions
Commenting on the Final Offers, NASDAQ President and CEO Robert Greifeld said: "We are excited about the prospect of combining two strong businesses to form the leading global, cross-border equity market platform giving issuers the ability to dual-list simultaneously in London and New York. The combined entity will be well positioned to lead further consolidation and compete effectively for the benefit of all market users."
On 20 November 2006 at 9.00 a.m. GMT (4.00 a.m. Eastern Time), a webcast will be available at www.nasdaq.com and a conference call facility for analysts and investors can be accessed by dialling +44 (0)20 7162 0025.
A second conference call and webcast for the benefit of US-based analysts and investors will be held at 8.00 a.m. Eastern Time (1.00 p.m. GMT). The webcast will be available at www.nasdaq.com and the conference call for US-based analysts and investors can be accessed by dialling +1 (800) 811-0667 or +1 (913) 981-4901.
This summary should be read in conjunction with, forms part of and is subject to the full text of the announcement. The Final Offers will be subject to the conditions set out in Appendix I and the full terms and conditions to be set out in the Offer Document and, in the case of certified holders of LSE shares, the Form(s) of Acceptance.
Appendix II to the attached announcement contains definitions of certain expressions used in this summary. Appendix III to the attached announcement contains the sources of certain information and bases of calculations contained in this summary.
Greenhill is acting as lead financial adviser to NASDAQ and NAL, with Dresdner Kleinwort acting as broker.
Financing and advisory services are being provided by Banc of America Securities LLC and Banc of America Securities Limited. In addition, Dresdner Bank is providing financing.
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