Deutsche Boerse's LSE dream starts to fade

[Menydh]

Deutsche Boerse's LSE dream starts to fade

Reuters
February 23, 2005

FRANKFURT (Reuters) - Deutsche Boerse's bid to buy the London Stock Exchange is looking increasingly fraught as rebel shareholders gain support and concern mounts in Frankfurt over concessions the group might make to get a deal.

Boerse Chief Executive Werner Seifert said on Tuesday he saw no need to improve his 1.3 billion pound offer for Europe's top stock market but it has twice been rejected and the longer he waits, the more time the rebels have to recruit.

Moreover, rival Euronext is readying a cash bid for the LSE(LSE.L: Quote, Profile, Research) it says would bring twice as many benefits as Boerse's, including a dual primary listing in London and Paris.

The Children's Investment Fund Management (TCI.L: Quote, Profile, Research), which owns over 7 percent of Boerse and opposes the bid at its current price, has said it will seek to change Boerse's supervisory board at the next shareholders' meeting -- set for May 25.

Atticus Capital, a hedge fund with over 5 percent, is also opposed to the deal and some reports have put the percentage of voting shares held by dissident investors at 35 percent.

To change the board, which appoints group executives, the rebels would need a majority at the AGM. That would normally mean fewer than 50 percent as many shareholders do not attend.

"Atticus and TCI hold over 10 percent of Deutsche Boerse... but they are working on (getting enough for the AGM)," said one source familiar with the situation.

Seifert is confident of winning over enough of his own shareholders to avoid defeat but recent feedback from U.S. and British institutional investors -- who in total own about 50 percent of Deutsche Boerse -- suggests he has his work cut out.

"Feedback from the roadshow was mixed and some investors were critical," said a source familiar with the situation.

TCI and Atticus oppose the plan, which would create the world's second biggest stock exchange after New York. They argue that Boerse would create more value by giving its cash pile -- set to hit one billion euros later this year -- to shareholders.

That is not Seifert's only headache. Leading figures in Frankfurt's financial community are becoming increasingly concerned that Deutsche Boerse will have to give too much away to win over LSE management and UK regulators.

"I still believe that Boerse should do the deal but it is getting harder and harder for Seifert," said a member of the Exchange Council, the Frankfurt market's supervisory body.

"In order to get the deal done he's trying to accommodate London but it's not clear what's in it for us," he added, saying major users wanted more details on pricing and market structure.

One source familiar with the situation said he rated Deutsche Boerse's chances of succeeding with its takeover plan at 50:50 and that he expected the UK's Office of Fair Trading to recommend an in-depth competition probe.

"If that happens, there won't be a deal before September."

RESISTANCE STIFFENING

Wolfgang Gerke, professor of banking and stock exchanges at the University of Erlangen and also a member of the Exchange Council, said the longer the talks drag on, the greater the risk of Frankfurt's financial services industry losing out to London.

"The process can't be allowed to run until September because London would try to squeeze out even more benefits, and opposition to the deal in Frankfurt is rising," he said, adding that Deutsche Boerse should make a hostile bid in May.

German investors own about 40 percent of Deutsche Boerse, down from 100 percent when the group last attempted to merge with the LSE in 2000, and their support will be vital if it comes to a showdown at the AGM.

Most of the big German funds are still on board but support could fade if Seifert feels compelled to sweeten the bid.

"With conditions as they are now, Deutsche Boerse will get its way. But if Boerse raises the bid, opposition could likely grow," said Konrad Becker, an analyst at Merck Finck.

Frankfurt-based fund dit, part of Allianz Global Investors (ALVG.DE: Quote, Profile, Research), said on Tuesday it believed Boerse should stick with its plan but warned against paying any price, echoing recent comments by Commerzbank (CBKG.DE: Quote, Profile, Research) and Union Investment.

Seifert appeared to address those concerns at a news conference on Tuesday, saying that his group had plenty of alternatives to the LSE bid.

"This company has many alternatives, many options to grow, be it organically or be it via mergers and acquisitions," he said. "There is always a walk-away price."

Losing his "belle of the ball" for a second time might be too much for Seifert to stomach, though, and many industry observers believe he has no option but to tough it out.

"The majority now seems to say, this is okay, this is good, but the upside looks to be limited, they might accept another 10 percent, but (the bid) will probably not exceed 600 by far," said Joern Kissenkoetter, analyst at MM Warburg.

Companies mentioned in this article
Data as of 27 Feb 2005 12:02 GMT
Symb	Company	Last	Chg	Chg %
LSE.L	London Stock Exchange	535.00p	-20.00	-3.60
TCI.L	Thompson Clive Investments	486.00p	0.00	0.00
ALVG.DE	Allianz AG	€95.22	+1.26	+1.34
CBKG.DE	Commerzbank	€16.85	+0.18	+1.08

[source]