In the document released today, OM emphasises the urgent need for change of ownership of LSE to equip LSE with the means to compete. OM believes that, without a fundamental reappraisal of LSE's strategy and significant technology investment, LSE will progressively lose its share of trading volumes to other more advanced, more efficient competitors.
LSE needs new management, new technology and a clear strategy, which is what OM brings to the shareholders and customers of LSE in the form of its offer.
Commenting, Per E. Larsson, President and Chief Executive Officer of OM, said: "LSE is not equipped to execute a strategy to compete. It is at a crossroads: the opportunities are tremendous, but then so are the threats to a successful future. Decisions that will be made by shareholders are critical. As time has gone by, the weaknesses in LSE's defence have become increasingly apparent, and the recent U-turn in strategy is further evidence of this. At present, LSE has nowhere to go and needs a partner. OM's offer closes on 10 November. It is now time for change, and it is now time for shareholders to decide".
In the document, OM re-emphasises the merits of its Increased Offer announced on 13 October 2000. The Increased Offer comprises:
- Value: 1.4 new OM Shares for each LSE Share, valuing each LSE Share at £32.71
- Cash: Majority Cash Alternative giving £20.00 in cash and 0.5 new OM Shares for each LSE Share, valuing each LSE Share at £31.68
- Influence: LSE Shareholders could own up to 33 per cent. of the enlarged OM Group
- Governance: Two independent directors on LSE's Board Appointment of new directors to OM's Board to represent new OM Shareholders Active participation of members, customers and end-users in dedicated working groups reporting directly to LSE's Board
- Leadership: Per E. Larsson, President and Chief Executive Officer of OM, to be Chairman of LSE
OM's blueprint is:
- Clear commercial vision - transform LSE into a world-class, for-profit organisation to create shareholder value - meet customers' ever changing needs - build on the London Stock Exchange brand - create Europe's leading exchange in terms of cost competitiveness and liquidity depth
- Clear technology vision - exploit technology as a foundation of LSE's competitive advantage using OM's acknowledged technology leadership
- Clear vision on market development - secure LSE's position as the pre-eminent European secondary market for trading both high growth and blue chip equities - reinforce the retail market by making equity trading more accessible - strengthen LSE as the leading European IPO market for both high growth and blue chip companies - pursue the initiative developed with CRESTCo to improve efficiency along the transaction chain - expand LSE's trading network internationally to attract market participants - establish LSE as the leading European integrated cash and derivatives exchange
- Clear vision on regulation - keep London's current single set of rules and regulations - maintain existing high levels of transparency and clarity
- Clear vision on corporate governance - establish clear separation of ownership from membership interests - ensure management incentives aligned with shareholders' interests
- OM believes that the long-term shape of the European exchange industry is likely to take the form of only two or three trading networks
- OM intends to put LSE at the centre of one of these pan-European trading networks
- OM intends to establish LSE hubs in key strategic locations across Europe: initially in Frankfurt, Paris, Amsterdam, Milan, Zurich and Stockholm - the hubs will provide continental European members with local connection points to LSE's trading platform, reducing their access costs
- OM has the technology to power LSE with an exchange system that will support: - 2,500 members trading in 7 countries - 3 million trades per day across 200,000 instruments - CRESTCo, working with OM, published a clearing and settlement solution coherent with OM's pan-European vision on 26 September 2000
- CRESTCo's solution comprises straight-through processing exploiting the Central Counterparty structure developed by LCH and CRESTCo - settlement will be at low, local settlement costs for most transactions: as much as 90 per cent. less than cross border settlements
LSE's "U-turn" defence
So far, LSE has made a 180 degree U-turn on strategy, and is still turning:
- Only a few weeks ago, LSE strongly backed the iX merger proposal because of a misguided belief that the route to a pan-European market lay purely in a "pooling of liquidity"
- Yet today LSE is backing a go-it-alone strategy which involves competition with every exchange in Europe
LSE's belated acknowledgement of competition
OM notes that LSE is considering "admitting the leading European equities to trading on its existing systems" in direct competition with other markets.
- LSE has suddenly accepted OM's view that liquidity is not "sticky"
- This is in direct contrast to Mr. Cruickshank's pronouncements to the contrary in Brussels less than three weeks ago
Why so late? Why more than two years after Frankfurt overtook LSE as the foremost European host of high growth IPOs? Why just months after conceding the European high growth equity market to Frankfurt?
OM's capabilities
- When LSE measures "scale" of equity trading using one exchange's system versus another's, the relevant measure should be the number of bargains, not the value of shares traded
- Some facts about technology that demonstrate the real scale of OM Stockholm Exchange's equity trading relative to LSE's: - 97 per cent. of all equity bargains on the OM Stockholm Exchange in the six months to June 2000 were executed through its SAXESS electronic order book, yet - only 19 per cent. of LSE's bargain volumes in the same period were executed through LSE's electronic order book - OM Stockholm Exchange handles 70 per cent. more trades through its electronic order book by volume - the correct measure - than LSE
- Within the brief period since the launch of the offer, OM has secured two new major exchange and clearing systems orders for the London Metal Exchange and the Sydney Futures Exchange
- OM is committed to low trading charges on the London Stock Exchange
- OM will continue to lobby the UK Government, having commenced last year independently of its offer for LSE, for the abolition of stamp duty - a duty which would have been abolished long ago were it not for an earlier LSE shambles: Taurus
- The proposals suddenly suggested by LSE in its defence statements will, if implemented, place large additional demands on trading system capacity. In OM's view, LSE's SETS system will be critically short of the capacity needed to cope with these proposals - the combined effect of just two of these.. 1. developing more European equity trading on SETS, and 2. bringing significantly more retail business onto SETS will, in our view, push volumes right through SETS' limits for safe working loads - furthermore, the graphical presentation of capacity in LSE's second defence document shows current and upgraded capacity "cover" over average daily market trades. This does not take into account the need to cope during periods of intense trading, such as market opening and closing - the impression is therefore given that there is significant additional capacity - but OM believes this cannot be the case - OM predicts, based on estimates and assumptions that are reasonable in OM's view, that capacity demands will breach SETS' safe working loads - in addition, OM believes that this capacity limitation will prevent LSE from introducing programme and basket trading, both of which are available today on OM Stockholm Exchange's SAXESS system
- LSE has dropped far behind the competition. On the public record, Mr. Cruickshank commented on the Xetra-based technology to which LSE's members would have been forced to migrate at their cost under the iX proposal, saying: "It is a new system coming in at a time when SETS would have been coming up for replacement anyway." Don Cruickshank, Chairman, LSE This is London, Evening Standard 12 September 2000
- LSE has misled its shareholders and customers by using irrelevant measures to illustrate the "size" of its "IPO market". Some facts about techMARK: techMARK is not a market - Neuer Markt is - techMARK is merely a branded grouping. That is why techMARK started with some 190 companies from day 1 last November - all on the Official List - in its first defence document, LSE mentions that "techMARK companies have raised nearly £8 billion since launch in November 1999". LSE omits to mention that only about £4 billion of that amount actually came from IPOs - compared to £8 billion of IPOs on Neuer Markt in the same period. - long established companies such as BT and Glaxo Wellcome are major constituents of techMARK, described by LSE in its first defence document as an "IPO market"
- LSE Shareholders should be aware that: - LSE took over two years to react to Neuer Markt's success - LSE is still playing catch-up to other high growth markets
It is now for the LSE Shareholders to decide who is best equipped to deliver the means for LSE to compete. LSE is asking its shareholders to believe that, despite a decade of disasters and a culture of inertia, it can adapt to meet the challenges it faces.
Yet with the vested interests on its Board and its limited commercial skills, is LSE really capable of making such a transition on its own? How can LSE reconcile the fundamental fault lines that exist within its present structure, split between the retail brokers and the international investment banks with their disproportionate board influence? It is important to remember that, if you do not accept OM's offer, not only would you be rejecting OM as a new owner, but you would also be actively deciding that LSE is capable of developing coherently and sufficiently swiftly on its own. Can you afford this gamble?
Terms of the Increased Offer
Under the Increased Offer, OM is offering LSE Shareholders for each LSE Share held:
1.4 new OM Shares, valuing each LSE Share at £32.71
or £20.00 in cash and 0.5 new OM Shares (Majority Cash Alternative), valuing each LSE Share at £31.68
On the basis of OM's closing share price of SEK342.5 on 26 October 2000 (the latest practicable date prior to this announcement) and an exchange rate of SEK14.66:£1.00 (as published in the Financial Times on that date), the basic terms of the Increased Offer value LSE at approximately £971 million and the Majority Cash Alternative values LSE at approximately £941 million. The basic terms of the Increased Offer represent a premium of approximately 39 per cent. to the closing price of an LSE Share on 25 August 2000, the pre-offer reference price. The value of the Majority Cash Alternative represents a premium of approximately 35 per cent. to the same reference price.
The cash element of the Increased Offer is to be financed from committed credit facilities. A portion of the cash consideration is to be refinanced later through a Refinancing Issue.
The new OM Shares issued under the Increased Offer will rank pari passu in all respects with the existing OM Shares except that they will not be entitled to participate in any Refinancing Issue but will carry the right to an issue of further OM Shares for no further consideration to compensate LSE Shareholders for the bonus element of the Refinancing Issue.
The Increased Offer also includes an Additional Cash Election. This will entitle LSE Shareholders who have elected for the Majority Cash Alternative to receive a greater proportion of their consideration in cash to the extent that other LSE Shareholders accept the Increased Offer under its basic terms. There is also a Loan Note Alternative.
4.9 per cent. ownership restriction in the Articles of LSE
OM's offer remains open, regardless of the outcome of last Thursday's EGM, when only 33 per cent. of the shareholder base voted against the resolution to relax the ownership restrictions over LSE Shares. If OM is in a position to declare the Increased Offer unconditional as to acceptances, it will take the further steps available to it in order for the offer to be completed successfully.
To accept the Increased Offer
Revised Forms of Acceptance in respect of the Increased Offer should be received not later than 1.00pm on 10 November 2000. Further copies of the Increased Offer Document and the Revised Form of Acceptance will be available from Capita IRG Plc by post or collection by hand from Capita IRG Plc, New Issues Department, PO Box 166, Bourne House, 34 Beckenham Road, Kent, BR3 4TH or, by hand only (during normal business hours), from Capita IRG Plc, Guildhall House, 81-87 Gresham Street, London EC2.
In addition, the Increased Offer Document is available on OM’s website at www.omgroup.com.
The Directors of OM accept responsibility for the information contained in this announcement and, to the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.
Lazard Brothers & Co., Limited ("Lazard") and Enskilda Securities AB, which are regulated in the UK by The Securities and Futures Authority Limited, are acting for OM and no-one else in connection with the Increased Offer and will not be responsible to anyone other than OM for providing the protections afforded to customers of Lazard or Enskilda Securities AB or for giving advice in relation to the Increased Offer.
Words and phrases defined in the Increased Offer Document carry the same meanings in this announcement. The Increased Offer is not being made, directly or indirectly, in or into or by the use of the mail or any means or instrumentality of interstate or foreign commerce of, or any facilities of a national securities exchange of the United States nor is it being made in Canada, Japan or Australia. Neither the new OM Shares nor the Loan Notes will be registered under the United States Securities Act of 1933 (as amended). Further details in relation to overseas shareholders are contained in the Increased Offer Document.
The full text of the conditions and certain further terms of the Increased Offer forms part of, and should be read with, this announcement.
Lazard has approved this announcement solely for the purposes of Section 57 of the Financial Services Act 1986.
