Stockholm bourse launches $ 1.19 bn hostile bid for LSE

Stockholm bourse launches $ 1.19 bn hostile bid for LSE
REUTERS

AUG 29: The Stockholm Stock Exchange launched on Tuesday an 808 million pound ($1.19 billion) hostile bid for the London Stock Exchange, setting off the world's first takeover battle for a bourse.

The move casts serious doubts on whether London's planned merger with Frankfurt's Deutsche Boerse to form iX can continue in its projected form. It could also spark a bidding war for the LSE, the world's third largest cash equity market, as exchanges vie to become the leading Pan-European trading platform to serve a regional market poised to grow dramatically.

OM Gruppen, which operates the Stockholm bourse, said it was offering 0.65 new OM shares and seven pounds in cash for each LSE share, a bid representing a 15.7 per cent premium over the LSE share price on August 25.

The offer adds up to around 27 pounds per LSE share, and OM said the bid was conditional on gaining 90 per cent acceptance. LSE shares -- which last traded at 23.5 pounds on Friday -- soared 17 per cent to 27.50 pounds in early trade on news of the hostile bid, rising above the 27.19 offer price. OM shares rose four Swedish crowns, or nearly one per cent, to 429 crowns.

OM chairman Olof Stenhammar told Reuters a formal offer document would be presented within 28 days. LSE shareholders are due to vote on whether to merge with Frankfurt on September 14, but this timetable has now been thrown into doubt as the LSE will have a legal obligation to allow its shareholders to examine any alternative offers.

IX faced growing scepticism from many LSE shareholders even before Stockholm made its move. Many LSE market players say key aspects of iX, like clearing and settlement, regulation and trading set up, are too vague to vote on.

London turned down OM's cash and paper approach last Friday, and was quick on Tuesday to rebuff the formal bid. "We reject the bid. We regard it as unsuitable, both for financial reasons and the business case," an LSE spokeswoman said.

She was unable to say if the September 14 vote would not be delayed, but added that "we have got to make sure our shareholders have got time to consider the offer". The Deutsche Boerse declined to comment on Stockholm's hostile bid for its iX partner in London.

However, the Boerse's biggest shareholder Deutsche Bank said in a newspaper interview on Tuesday the Frankfurt exchange would be ready to consider a friendly takeover bid for London if Stockholm launched a hostile bid.

OM said its proposed takeover of the London Stock Exchange would create savings of 30 million pounds per year. "We would create a merger between Sweden and London and create economies of scale," OM Chairman Olof Stenhammar told Reuters in a telephone interview.

Stenhammar said London's plan to merge with the Deutsche Boerse failed to use London's potential as a financial centre. "You are throwing away one of your crown jewels here -- the 50:50 deal with Frankfurt is a giveaway of the real potential of the London market which is eight times bigger than Frankfurt," he said.

Stenhammar said OM Gruppen would hold a series of presentations to LSE shareholders to explain the offer, which aims to create a new platform for the LSE using OM's SAX technology, in use on many exchanges around the world.

Stenhammar said OM needed a partner, "and that partner is not another exchange but a technology partner." "We bring technology and expertise in running an exchange commercially," Stenhammar said. The Stockholm Stock Exchange was the first in the world to float.

Initially, OM would look to secure existing trading volumes in blue chips and growth stocks in London and strengthen the initial public offering market. After merging the two bourses, OM would look to make a market in all major European shares along the lines of its planned Jiway project which launches in November to create Pan-European Internet-based stock market for small investors. "We think Jiway is a complement to this -- Jiway is the retail cross border market and the LSE is very much an institutional market," Stenhammar said.

OM said regulation for the LSE would remain in London. LSE clearing and settlement would remain with Britain's Crest, though OM has yet to hold talks with Crest, Stenhammar said.

Brokers and banks will now look to see what Deutsche Boerse will do to keep its iX project from collapsing. Other exchanges will also be closely watched to see if they will enter the bidding fray, particularly Euronext, and Nasdaq.