19 December 2006

FT: LSE rejects Nasdaq approach

The defence document released by the London Stock Exchange yesterday was portrayed by Clara Furse, chief executive, as an effort to put the company’s business model into its proper perspective.

Issuing the document, the LSE said that the £2.7bn ($5.3bn) hostile bid by Nasdaq, at £12.43 a share, did not even give shareholders “your stand-alone value”.

“What we’re trying to do is to help the market understand what drives our business forward so powerfully,” she told the Financial Times, adding the exchange had become “not just an agent but a beneficiary” of the trend that has seen a record number of foreign companies seeking London listings.

She said continued purchases of LSE shares – largely by non-UK investors, mostly hedge funds – showed “that they put us in that global context”.

In recent weeks, however, Nasdaq’s advisers have pointed to the dominance of so-called event-driven hedge funds on the LSE’s shareholder register as a sign that, contrary to taking a long-term view of the LSE’s prospects, its investors are looking for a quick and profitable exit.

Bob Greifeld, Nasdaq chief executive, said yesterday: “The board of LSE is ignoring the elephant in the room at its peril. Its recent growth in revenues has taken place without a proper sharing of benefits with users. Regulatory changes, increased consolidation and customer group competition are likely to bring significant downward pressure on LSE’s revenue model going forward. There is nothing in the [defence document] which causes us to change our view on value.”

LSE’s shares were trading at £13.12 yesterday, down 5p but still above Nasdaq’s offer price – suggesting that shareholders believe a higher bid is coming.

It emerged on Monday that the LSE’s second largest shareholder, the US corporate raider Samuel Heyman, had raised his stake to 9.6 per cent.

Nasdaq is the LSE’s largest shareholder with a 28.75 per cent stake, making it difficult for a competing bidder to make an offer.

The US exchange has framed its offer as “final” and says it will not raise it unless there is a competing bid or the LSE board agrees to a deal. Nasdaq is understood to be warning shareholders privately that, even if the board agrees to talks, it believes its existing offer already represents a full price.

However, in its document, the LSE said that analysts believed Nasdaq’s own estimates of cost synergies were too conservative, and that cost savings to be achieved by merging the two exchanges were, on average, worth 140p a share.

It also argues that Nasdaq’s offer does not include any premium for control. The LSE calculates the offer as being equivalent to a multiple of 24.7 times 2006 earnings, compared with the 46 times that Nasdaq paid for Inet, its high-speed trading platform, and the 29.8 multiple of Nasdaq’s previous 950p a share bid for the LSE in March.

Ms Furse said the LSE had already been discussing its defence with shareholders and that no special roadshows were planned. She declined to be drawn about the terms upon which the LSE’s board might enter discussions with Nasdaq, noting that the US exchange’s bid was termed “final”, barring it from unilaterally making a higher offer under UK takeover rules.

“They have created these constraints,” she said.

© Financial Times