Liffe rejects Stock Exchange offer in favour of Euronext

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The Independent Online

Liffe, the London futures and options exchange, shocked the City yesterday by rejecting a £570m takeover offer from the London Stock Exchange in favour of a lower bid from its Paris-based rival, Euronext. Observers said the LSE was now likely to fall to a takeover itself.

An unscheduled meeting of Liffe's board yesterday morning unanimously rejected a last-minute offer by the LSE of £19 a share, composed of £12 in cash with the remainder in LSE shares, in favour of a £18.25-a-share all-cash offer from Paris-based Euronext, valuing it at £555m.

Executives and advisers from the LSE had been locked in talks with counterparts at Liffe over the weekend in a desperate attempt to hammer out a deal, after Liffe's bankers indicated late on Friday night that an £18.50-a-share offer, tabled in a formal presentation Thursday, was inadequate.

Euronext's successful offer has received irrevocable acceptances from holders of 51 per cent of its share capital, in effect ruling out a hostile bid by a party seeking to spoil the deal. Eurex, the derivatives unit of Germany's Deutsche Börse had also entered the auction with an offer priced at about £17 a share.

Sir Brian Williamson and Hugh Freedberg will retain their jobs at executive chairman and chief executive of Liffe, which will operate as a subsidiary of Euronext and function as the hub for the company's derivatives markets across Europe. Euronext also owns the Amsterdam and Belgium stock exchanges. In addition to their wider brief, Sir Brian and Mr Freedberg also stand to receive more than £5m upon the vesting of share options.

Sir Brian said Euronext had best understood Liffe's position in the marketplace, and he rejected criticism that he had "sold out" to a foreign takeover. "We've never been a British business, we have always been internationally owned," he said. "This is good for London. We are all confident that this is going to work."

Mr Freedberg added: "You have to put a value on an all-cash offer."

Jean-François Théodore, Euronext's chief executive, said the tie-up brought together Liffe's strengths in fixed income derivatives with Euronext's in equity derivatives. "You cannot be a great player if you don't have a London presence," he said.

The LSE expressed disappointment at Liffe's decision and indicated it would continue to pursue its strategy through alliances with other exchanges.

Clara Furse, its chief executive, said: "We put forward a bold proposition for the creation of a combined business, which would have created the first single technology platform for securities and derivatives. We are surprised that Liffe did not share our ambitious vision."

Under the LSE's proposals, Sir Brian would have been deputy chairman, with Don Cruickshank remaining as chairman of the enlarged business. Mr Freedberg would have become deputy chief executive.

It is thought that the pair had indicated they would not serve on the LSE's board other than to oversee the transition of the deal.

A spokesman for Deutsche Börse declined to comment.

Manus Costello, an analyst at Merrill Lynch, said the LSE was likely to look for another European deal or attempt a transatlantic deal. "We think that plan B for the LSE will be either an acquisition of another European cash-equity market or an alliance with one of the US derivatives markets," he said.

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