Euronext bid for LSE offers to double Deutsche's cost savings
Thursday 10 February 2005
The LSE has twice turned down Deutsche Borse's indicative offer of 530p a share - valuing it at pounds 1.3bn - as too low.
The London exchange remained silent yesterday on Euronext's plans to create Europe's largest stock market, pointing to the lack of a price tag. It said it was ready to talk to both suitors about an offer that fully valued the company and could be implemented. Jean-Francois Theodore, Euronext's chief executive, said: "Euronext is the natural partner of the LSE and we share the same business model."
Euronext, which runs the Paris, Brussels, Amsterdam and Lisbon exchanges, promised investors annual pre-tax cost and revenue gains of about Û203m (pounds 140m), compared with Deutsche Borse's Û100m. It also offered to immediately cut user fees by 10 per cent - similar to reductions announced by its German rival, with further fee cuts to come. It would seek a dual primary listing in London and Paris to reassure UK regulators, with the LSE regulated solely by the Financial Services Authority.
Last week the FSA highlighted serious concerns about a foreign takeover of the LSE, saying users' fears would be allayed by the LSE having a parent company in the UK and its primary listing in London.
M. Theodore said Euronext would move to a unitary, single-tier board, with half the non-executive directors drawn from the City. The head of cash trading, who would head the LSE, would be based in London. Asked if he had offered the job to the LSE's chief executive, Clara Furse, M. Theodore said the allocation of jobs had not been discussed.
Euronext estimated it could cut annual costs by Û152m in the second year after the merger's completion and add Û51m to revenue in the third year. Most of the cost savings would come from moving to a single share trading platform, but also from moving Euronext's UK derivatives exchange, Liffe, to the LSE building at Paternoster Square. One-third of Euronext's staff are already in London, where 41 per cent of its revenue is generated. Euronext estimated it would cost Û184m to implement the merger.
Deutsche Borse and Euronext have filed their interest to the UK's Office of Fair Trading, which could refer the proposals to the UK's Competition Commission or European regulators by the end of March. Should they be referred, it could take until September before a decision was made, M. Theodore said, suggesting he would not make a formal bid until getting clearance.
Euronext said it had agreed in principle debt financing with a group of eight banks. Analysts at Bear Stearns estimated it could afford to bid between pounds 6.40 and pounds 6.90 a share, far higher than the current LSE share price, which closed at 572p yesterday.
Richard Dunbar, of Scottish Widows Investment Partnership, which owns 4.7 per cent of the LSE, said Euronext's proposals were "credible", after rejecting Deutsche Borse's bid as undervaluing the LSE last month.
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