Apologies and aggression

Don Cruickshank, chairman of the much-buffeted London Stock Exchange, offered a public apology to the assembled members of the Association of Private Client Investment Managers and Stockbrokers (APCIMS) for the poor handling of the iX merger proposal when he spoke at their annual conference in Brussels at the beginning of October. Having bandaged that wound he immediately returned to the offensive and announced a plan “to reposition AIM and techMARK as broad international markets.” This commitment to compete head-on with the Frankfurt-based Neuer Markt relegates any chance that there might have been to rescue the alliance with Deutsche Börse to the realm of remote possibility. Mr Cruickshank also outlined a new consultation structure – the Exchange Markets Group – which will enable representatives to submit views from across the exchange. It will report directly to the chairman and is designed to appease those, not least the APCIMS membership, who felt that their concerns were not heard during the iX negotiations. However, the immediate priority was to see off the OM bid. He reiterated his belief that the proposal “undervalues the business and provides nothing new for customers.” Mr Cruickshank also warned shareholders not to be drawn by the “siren ‘gee whizz’ noises from OM - and others” when it came to technology. He said that the LSE’s existing systems were more than adequate and could accommodate many times current demand. As if this comment was not enough to suggest that co-operation with LIFFE is not on the Exchange’s agenda, he also observed that the same systems are “capable of being developed to serve markets other than cash equities markets.” On 13 October OM Group raised its offer to 1.4 OM shares for each Stock Exchange share or an alternative of UK£20 and 0.5 shares. The Swedish exchange said that under the new proposals LSE shareholders could own up to 33 per cent of the enlarged OM Group. In a measure that sought to capitalise on dissatisfaction with the LSE’s management of the iX debacle, it also promised clearer governance through the appointment of two independent directors to the LSE Board, additional directors on the OM Board to represent the interests of new OM shareholders and a series of working groups made up of “members, customers and end-users” that would report directly to the LSE Board.The offer was immediately rejected by the LSE. London’s new resolve to strike its own path in Europe was boosted at an Extraordinary General Meeting on 19 October when a move to lift the 4.9 per cent limit on individual holdings of its shares was rejected. 53.3 per cent voted against the proposal and 46.7 per cent were in favour. The decision means that any bidder will in effect need to secure the support of 75 per cent of the Exchange’s shareholders in order to effect a takeover (a 75 per cent majority is needed to lift the ownership restriction). By 27 October, the critical date after which the bidder was not able to revise the terms of its offer, OM had received less than three per cent acceptances. However, it declined to improve the terms but extended the offer period to 10 November. In the LSE’s third defence document it said that it would develop the SETS trading system for UK equities and SEAQ, which carries the market makers’ quotes. It also claimed that “The London Stock Exchange can create a pan-European market by admitting the leading European equities to trading on its existing systems.” In response, OM argued that SETS “will be critically short of the capacity needed to cope with these proposals” and referred to Mr Cruickshank’s observation when the iX merger was in prospect and it was thought that LSE members would have to adopt Deutsche Börse’s Xetra trading technology: “It is a new system coming in at a time when SETS would have been coming up for replacement anyway.” Mr Cruickshank rebuffed OM’s suggestions and claimed that London’s trading system capacity is currently over eight times the average total daily trades and it is set to rise to 16 times after a planned upgrade. As matters stand it seems unlikely that OM will secure the support it needs and an independent LSE and its chairman may breathe easy…for now.