The OFT's decision on reference under section 33(1) given on 3 February 2006. Full text of decision published 14 February 2006.
Please note that square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.
PARTIES
Macquarie London Exchange Investments Limited (MLX) is a newly created UK entity, which is ultimately controlled by Macquarie Bank Limited (MBL) through its wholly owned subsidiary, Macquarie European Financial Investments Pty Limited (MBLE), and its associated investment fund Macquarie Capital Alliance Group (MCAG), (through Macquarie Capital Alliance International Limited (MCAIL)).
London Stock Exchange plc (LSE) is a Recognised Investment Exchange under the Financial Services and Markets Act 2000. LSE demutualised in 2000 and became a listed UK plc in 2001. LSE's main business activities are: trading services in spot markets (which include listing and trading services); the generation and distribution of information products; and the development, implementation and operation of IT solutions for financial markets and market participants. The total turnover of LSE in the financial year ended 31 March 2005 was approximately £250 million.
TRANSACTION
On 15 December 2005, a consortium led by MBL and MCAG through MLX announced a cash offer for the entire issued share capital of LSE. In addition to MBL and MCAG there are four other financial investors involved in this transaction: CQS LLP (CQS) (see note 1), Centaurus Capital Limited (Centaurus) (see note 2), Finpro SPGS, SA (Finpro) (see note 3) and certain trusts controlled by Mr Matthew Perrin (the Perrin Trusts).
The top holding company of MLX is owned by three entities – MCAIL, Macquarie Financial Infrastructure Fund (MFIF) and Finpro Spain, which have shareholdings of 17.6 per cent, 67.6 per cent and 14.8 per cent respectively. MFIF is in turn owned by four entities – MBLE, Centaurus Master Fund, CQS Master Fund and the Perrin Trusts, which have shareholdings of 52.2 per cent, 21.7 per cent, 21.7 per cent and 4.4 per cent respectively. The overall structure of MLX and its holding companies is primarily determined by the terms of two shareholders' agreements. MBL has a controlling interest in MBLE, MFIF and therefore MLX.
However, other members of the bid consortium (Finpro Spain, Centaurus Master Fund and CQS Master Fund) may also be able materially to influence the affairs of MLX as a result of the level of their shareholdings in both the top holding company of MLX and in MFIF. In this instance, the OFT has not sought to reach a conclusion on whether any of these investors are able to exercise material influence over MLX because, regardless of the view taken, no overlap arises between the activities of these investors and that of the LSE.
MLX submitted a merger notice in relation to this transaction on 23 December 2005. The statutory deadline is 8 February 2006, following an extension of the period for consideration of the merger under section 97(2) of the Enterprise Act 2002 (the Act).
JURISDICTION
As a result of this transaction, enterprises carried on by or under the control of MBL and its associated fund, MCAG and the LSE will cease to be distinct. The UK turnover of the LSE exceeds £70 million, so the turnover test in section 23(1)(b) of the Act is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
ASSESSMENT
The OFT has considered the relevant frames of reference to be the provision of listing services, on-book trading services, clearing services and settlement services, as defined in the CC's Report (see note 4).
None of the members of the bid consortium (or any of the portfolio companies in which they may be deemed to have control or material influence) are active in any of the services provided by the LSE. Therefore, this merger does not raise any horizontal issues.
MBL has a vertical relationship with the LSE as it is a member of the latter for the purpose of being able to trade on the exchange. However, MBL's trades account for less than [0 per cent to 2 per cent] of the LSE's total trades (by volume). In addition, there is a regulatory framework in place to mitigate any risks of a conflict of interest. Therefore, this vertical link does not raise competition concerns.
Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
DECISION
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.
NOTES
1. CQS will invest through CQS Convertible and Quantitative Strategies Master Fund Limited (CQS Master Fund).
2. Centaurus will invest through Centaurus Alpha Master Fund Limited (Centaurus Master Fund).
3. Finpro will invest through a wholly owned Spanish investment fund, Finpro Inversiones SL (Finpro Spain).
4. Deutsche Börse AG, Euronext NV and London Stock Exchange plc: A report on the proposed acquisition of London Stock Exchange plc by Deutsche Börse AG or Euronext NV, November 2005.
Download the full text of this decision (pdf 83 kb).
