LSE shares soar in an attempt to fend off bids
Last Wednesday the Australian investment bank Macquarie tabled yet another bid for the London Stock Exchange in a hostile acquisition battle that has lasted nearly a year. The bank's 580p per share offer attracted the same acceptance as its January tender with a meagre 0.4 per cent of shareholders willing to concede. The LSE called the bid "derisory" and Macquarie now has until 25th February to raise its offer in accordance with UK Takeover Panel rules.
The Competition Commission has now paved the way for other exchanges to muscle in. In particular, Euronext and Deutsche Börse. Although, the commission has stipulated any offer must come with the guarantee of relaxed control over post-trade clearing services. It is most likely that Euronext will make an offer, since Deutsche Börse's attempted negotiations last year were met with fierce opposition from shareholders. A spokesman from Euronext did however stress that the company did not need to merge since earning were strong and focus should always lie with ensuring maximal capital returns for shareholders.
The fiasco took an interesting turn on Friday with the LSE forecasting doubled trading volumes for 2008 and cost cutting measures designed to save £10 million. Plans were announced to begin an annual share buy-back programme of £50 million, promising dividend rises of 71%. The news resulted in heavy trading that brought the price up to 824p. Macquarie is expected to meet with shareholders this week to determine whether they would accept a substantially raised offer but one still below the current market level.
Sceptics have dubbed this a deviant manoeuvre by the LSE in order to reach unaffordable price levels and dissuade hostile action. The LSE is essentially a low growth business that would never justify an acquisition price-tag equal to 26 times 2005 earning of £105 million. In addition, the current structure of the deal is such that interest costs for Macquarie would rise to £107 million per year, were the bank to match the market value.
Volume rises are an inevitable natural progression in the market and European stock exchanges have been accused of taking advantage of their monopoly-like status.
