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London market slams OM
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September 25, 2000: 10:16 a.m. ET
U.K. exchange calls hostile $1.2B bid 'cheap'; Frankfurt still interested in LSE
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LONDON (CNNfn) - The London Stock Exchange on Monday warned its shareholders they would suffer a "a terminal loss of influence" over the U.K.'s share trading marketplace if they accept a hostile takeover bid from OM Gruppen, but presented no alternative deal to the Swedish company's offer.
OM's bid of $1.2 billion was too low and offered the exchange's members no clear benefit, LSE Chairman Don Cruickshank told shareholders in a letter, adding that the price of the bidder's shares, which make up about three-quarters of the value of the offer, was volatile.
The takeover offer has rattled the LSE, forcing the exchange to pull the plug on its planned merger with Germany's Deutsche Boerse. LSE Chief Executive Gavin Casey, who had been pushing the Deutsche Boerse deal, resigned shortly afterward.
OM Gruppen, the world's first publicly traded exchange operator and a leading provider of stock exchange operating software, has touted its ability to reap cost savings by absorbing the London exchange.
Publishing the LSE's official defense against the hostile bid, Cruickshank wrote: "OM's offer is an attempt to buy your company on the cheap, predominantly using new OM shares, which are of uncertain value."
OM shares fell 12 Swedish crowns to 432 crowns.
OM offered 0.65 new OM shares and £7 ($10.15) in cash for each LSE share. When the bidder made its offer, it was 17.6 percent above the previous LSE share price, but by Monday the value of the offer was less than the £30.00 at which LSE shares recently changed hands. LSE was down 90 pence, or 2.9 percent.
Shareholders are also customers
"It's a terminal loss of influence for the shareholders of the London Stock exchange," Cruickshank told CNNfn. "They get an 18.5 percent stake in a tightly controlled company. In addition, it does nothing for them as a customers."
The shareholders of the exchange are also its customers, as a result of the exchange's transformation last year into a limited liability company, when it handed shares to the brokerage firms that previously controlled the exchange on a mutual-ownership basis.
Cruickshank declined to comment on any discussions the LSE may be having with other merger partners, saying the LSE "doesn't need to do deals."
"We'll be fighting to get the right position for the LSE for a long time yet," Cruickshank said.
Industry executives and analysts have said the London exchange has four potential options: a counterbid by the Frankfurt bourse to acquire the LSE; a move by Euronext, which was created by the merger of the Paris, Amsterdam and Brussels exchanges; a bid from the U.S. Nasdaq exchange, and a domestic tie-up between the LSE and LIFFE, the London futures and options market.
Breuer: Frankfurt still in the running
The possibility of a revived German-British deal gained some ground after Deutsche Boerse supervisory board chairman Rolf Breuer said an alliance between the Frankfurt exchange and the London Stock Exchange could still go through despite the collapse of the original merger plan.
"We have other options, but if London comes to the conclusion that going together with Frankfurt is not such a bad idea, which I think is likely, then I think that Frankfurt would not say no," Breuer told journalists on the sidelines of a joint International Monetary Fund/World Bank meeting.
The LSE also said it will hold a general shareholder meeting on Oct. 19 to discuss removing a limit on its shareholders' voting rights. Its current statutes prevent any shareholder from exercising more than 4.9 percent of the company's overall votes, regardless of the size of its shareholding.
Cruickshank wrote that the limit was still needed for stability, to prevent one buyer from getting too much influence and acting against the interests of customers and shareholders.
If shareholders vote to raise the cap, more bidders to buy the exchange could emerge, analysts say. 
-from staff and wire reports
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