Lord Rothschild to head Börse rebels

Rebel shareholders of Deutsche Börse, the German company bidding for the London Stock Exchange, have lined up the veteran City banker Lord Jacob Rothschild as their proposed replacement for Rolf Breuer, the Börse chairman they are trying to oust.

Rebel shareholders of Deutsche Börse, the German company bidding for the London Stock Exchange, have lined up the veteran City banker Lord Jacob Rothschild as their proposed replacement for Rolf Breuer, the Börse chairman they are trying to oust.

The Children's Investment Trust (TCI), which owns a 7.5 per cent stake in Deutsche Börse, and Atticus Capital, which owns about 5 per cent, are opposing the company's proposed £1.4bn takeover of the LSE, and are instead calling for the group to return €500m (£346m) to its investors.

The two hedge funds have emerged as strong critics of Deutsche Börse's corporate governance procedures over the past week, accusing Mr Breuer of deliberately not informing his company's board of the growing opposition to its LSE bid.

Two more major shareholders - Merrill Lynch Investment Managers and Fidelity Investments - emerged to register their disapproval for the proposal, after the chairman told bankers his company's bid was only being opposed by a couple of hedge funds.

Deutsche Börse's shares have hit an all-time high on speculation that the company will be forced to climb down. In a letter to Mr Breuer last week, Christopher Holn, a partner at TCI, said: "We intend to exercise our voting rights in full at the next shareholders' meeting to vote against the existing supervisory board members' re-election."

Atticus and TCI also argue that Mr Breuer should go because of an alleged conflict of interest. He is chairman of Deutsche Bank, which is providing part of the financing for the Börse LSE offer.

Supporters of the bid, however, argued that the rebel shareholders' choice of chairman also presents a potential conflict of interest. His son, Nat, is president of Atticus, which is leading the revolt. Lord Rothschild ran his family's corporate banking business for many years and is currently the deputy chairman of BSkyB, the satellite television company.

The rebels also face a hurdle in that shareholders may not have the opportunity to vote on Lord Rothschild's election until the Deutsche Börse annual general meeting on 25 May - by which time a bid for LSE could have been agreed.

Under German corporate law, companies do not have to consult their shareholders when making acquisitions, large or small. Furthermore, shareholders are unable to requisition extraordinary general meetings unless they have more than a 5 per cent stake in the company, and they have held the stake for a minimum of three months. Atticus and TCI have built up their stakes to significant levels only in recent weeks.

If shareholders are successful in requisitioning an EGM, however, and manage to oust Mr Breuer, who chairs the group's supervisory committee, the new chairman would be in a position to also unseat Werner Seifert, who heads the company's executive committee.

Deutsche Börse's initial informal bid of 530p a share was rejected by the LSE, but Mr Seifert is now believed to be putting the finishing touches to a higher formal bid, which could come in at as much as 580p a share.

Euronext, the Dutch-listed company which owns the French stock exchange and the London derivatives market, has also stated its interest in making a bid for the LSE. However, it has yet to give any indication of how much money it would be prepared to pay.

The proportion of Deutsche Börse shareholders opposed to a bid is now believed to be about 40 per cent. However, the Frankfurt-based investor Union, which has a 4 per cent stake in the company, has said it believes the majority of the rebels are not serious in their attempts to derail the bid.