LONDON (CNNfn) - The Stockholm bourse on Tuesday launched the first hostile takeover bid for another stock market, offering $1.2 billion for the much larger London Stock Exchange and threatening to derail the LSE's plan to merge with Germany's Deutsche Boerse.|
The London exchange postponed a Sept. 14 shareholder vote on its proposal to combine with Deutsche Boerse after the formal bid from OM Gruppen, the Swedish bourse operator. The LSE had earlier rejected OM's offer, calling it "unsuitable."
OM, which is also a maker of software used by stock exchanges, pitched its takeover bid directly to the London market's shareholders after LSE officials rejected an informal approach by the Swedish firm Friday.
"London needs a partner, but not another stock exchange - they need a technology partner," OM Chairman Olof Stenhammar told CNNfn in an interview in London Tuesday. He said one of his goals in the deal was "keeping the LSE as the pre-eminent stock exchange in Europe."
The move is a new twist in the increasing integration of Europe's stock exchanges. London and Frankfurt unveiled their planned merger in May, shortly after the stock markets in Paris, Amsterdam and Brussels agreed to merge to form Euronext.
Bourses have been facing pressure to provide customers cheaper and easier trading of stocks from across the region in response to challenges from newer securities trading mechanisms, such as electronic networks.
OM said that if it acquires the LSE, the enlarged market will seek to become a forum for trading in all major European shares, not just the stocks currently listed on the London and Stockholm exchanges.
The Swedish company, the world's first publicly traded stock exchange operator, is offering 0.65 new OM shares and £7 ($10.29) in cash for each LSE share, a total of £27.19 per share. That's 15.7 percent above the last traded price of LSE stock on Aug. 25, and puts a price tag of £808 million on the London exchange.
"I believe they should have paid a little more - a 16 percent premium, to me, sounds a little cheap," said Mattias Grenmark, an analyst with Merita Nordbanken in Stockholm.
But Stenhammar said his company's offer represented "a fair market price" for the LSE, adding that his company's first order of business was to convince LSE shareholders of the benefit of the proposed deal. "The price [of LSE shares] today reflects the synergies of the iX merger.
"The deal between London and Frankfurt, which would form an exchange known as iX, was billed as a merger of equals and was not expected to generate a premium for the London market's shareholders.
Merita's Grenmark said LSE shareholders now face a choice: to join a publicly traded and fast-growing Swedish market operator, which has a strong core business providing stock market-related software, or to expand by combining with the German Boerse, the world's 7th-largest stock market and Europe's No. 3.
If LSE shareholders accept the Swedish bid, they will own 18.5 percent of the enlarged OM Gruppen. The acquisition would boost OM's earnings in the first full year following completion, the bidder said, predicting cost savings of about £30 million a year within four years. London and Frankfurt earlier said their merger should generate "significant," but unspecified, savings.
OM stock rose 3 Swedish crowns, or less than 1 percent, to 428 crowns in Stockholm by midday Tuesday. The stock has more than doubled from 179 crowns at the end of 1999. OM said it planned to list its own shares in London after taking over the LSE.
Shares of the London Stock Exchange on Tuesday rose 375 pence, or 16 percent, to 2,725 pence.
Frankfurt to hit back?
Deutsche Boerse declined to make any immediate comment about the Swedish bid. Press reports Monday speculated Frankfurt would come up with an improved offer to prevent OM from snatching the LSE from under its nose.
The LSE is owned by its members, mainly stock brokerages, having changed its status to a joint stock company earlier this year. Trading in its shares, which are not listed on any public exchange, is conducted by blue-blooded London brokerage Cazenove. The Frankfurt Stock Exchange does not have shares but has said it is moving toward a listing.
The combined market value of all companies listed on the iX market, as at the end of 1999, would have been some $4.3 trillion, compared to $3.2 trillion for a combined London-Stockholm market.
According to 1999 data from the International Federation of Stock Exchanges, London's stock exchange had a total value of $2.86 trillion last year and Frankfurt's bourse had a global market capitalization of about $1.43 trillion. The value of stocks traded on the Stockholm stock market was $373 billion, making it the eighth-largest exchange in Europe.
Nasdaq waiting in the wings?
Almost from the moment the iX deal was announced, the proposal has faced criticism in both Germany and Britain. In the U.K., the most vocal opponents have been small brokerages that are fearful they would lose out under the proposed new structure.
"In the end, the [London] shareholders will not be unified and the Deutsche Boerse deal will fall apart or at least be delayed," said Merita's Grenmark.
The London and Frankfurt exchanges have said they plan to form a transatlantic alliance with the Nasdaq market in the United States once their deal is done. The three have held out the possibility of a full-blown merger down the road. The LSE and the Deutsche Boerse also said the exchanges in Milan and Madrid had showed interest in joining iX at a later date.
Grenmark said the Stockholm bid could serve as a spur for other exchanges - such as the Nasdaq - to come forward with bids for the LSE.
"There might be others coming into this bidding fight, but we will need to see interest from the LSE shareholders first," said Grenmark.
The London-Frankfurt merger needs the approval of holders of at least 75 percent of LSE shares. Current rules prevent any single shareholder from owning more than 4.9 percent of the exchange, thereby making it easier for dissenting shareholders to block the merger.