ALAS, farewell Werner Seifert. Yours was possibly the worst bid launched by a major public company (Deutsche Börse) for another major public company (London Stock Exchange) I can recall. Some were surprised by the abrupt ending of your LSE bid. We at The Sunday Times were not.
From beginning to end it was a textbook case of how not to try to take over another company. Indeed, I confidently predict that quite quickly it will become a case study at business schools under the title: The Worst Takeover Bid Ever? Seifert knocked on the LSE’s door as far back as December armed with nothing more than a loose set of proposals, most of which he kept secret from the market. Ever since then LSE shareholders have been urging him to get a move on and actually launch a bid. But a bid never came, and puff, just like that, Seifert and Deutsche Börse are now gone.
Last week many in the City of London breathed a sigh of relief. A Seifert-controlled LSE would have been calamitous for Europe’s leading financial centre. The bid process exposed Seifert’s misunderstanding of Anglo-Saxon markets, and, most important, misunderstanding of shareholder power.
Of all the lessons the Börse needs to learn to avoid further humiliation in foreign ventures, the most important is this: listen to your shareholders. That means on big stuff, such as transformational transactions, give them a vote. It may seem basic to us, but Seifert and his chairman, Rolf Breuer, just did not get it.
And yet, we should not let this tempt us into thinking we have seen the last of Seifert. For the time being he has returned to Frankfurt to save his job and lick his wounds.
But rather like one of those soap-opera characters who “dies”, but when ratings dip, miraculously reappears (Dirty Den?), I suspect Seifert will be back. He just has that way about him. I doubt he and/or Deutsche Börse will return in the current round of stock- exchange bidding, but we have not seen the last of this determined, if flawed, businessman.
Euro boss is next
MEANWHILE the ball that Seifert so rapidly dropped last Sunday night has now been passed to Jean-François Theodore, executive chairman of Euronext, the Franco-Dutch exchange. The LSE is now his to lose. A bigger contrast to Seifert you could not get. Communication with shareholders has dominated his efforts, taking him to the cusp of an extraordinary deal.
He has already offered up a considerable amount to appease Clara Furse (chief executive) and Chris Gibson-Smith (chairman) at the LSE, its customers, and the regulators at the Financial Services Authority. If Euronext were to take over the LSE, there would be a dual primary listing (London and Amsterdam) and a single unitary board compliant with the UK combined code. The company would not be headquartered in London, but the cash equities and derivatives divisions would be managed from here.
But the great unknown remains price. What is Euronext prepared to pay to dominate the European stock- exchange sector for the next 10 years? LSE investors argue that the company’s underpinned share price is now about 400p. On top of that, there are about €200m cost savings and revenue synergies to be distributed. Say that equates to another 300p of value, that would mean there is 700p to be shared out between Euronext and LSE shareholders.
But who will get what? Given that LSE turned down a bid proposal of 530p a share from Deutsche Börse, we can assume that it is now holding out for something nearer to 600p a share. But Euronext will want to avoid paying anything like that and would see 550p a share as generous. The most interesting thing would be if Euronext offered 580p a share: how would the LSE and its shareholders react then?
Talk or walk
YET some doubt that a price discussion will ever come. The LSE is keen for Euronext to table a bid before the Office of Fair Trading pronounces, probably at the end of this month. But Euronext wants a recommendation from the LSE board, and will not bid formally until that is assured.
Furthermore, there is little incentive for Euronext to bid before the OFT rules on whether the Competition Commission should launch a multi-month inquiry.
The LSE is no doubt urging Theodore on, making clear that if he really wants the deal, it is there for the taking. But will this conservative creature do what he should, take a deep breath, and produce a knockout bid that enables Euronext to become Europe’s leading stock exchange? Many are sceptical. So it remains entirely possible that Euronext walks rather than bids, and LSE is left with no partner. The share price drops like a stone, back down to 400p, or below.
Or does it? Furse and Gibson-Smith are busy working on a so-called Plan B, a series of measures that would enable the LSE board to show its shareholders a profitable independent future for the London exchange. These would include leveraging the balance sheet to be able to return more funds to shareholders, thinking about links with US exchanges and giving more details on likely organic growth. It is not boom time in London, but the amount of business is definitely on the up, the LSE would argue. The next few years could see very strong business flows.
Led by Threadneedle Investments, LSE seems for the time being to have shareholders who agree with this strategy. They are saying: try your hardest to make Plan A work — a deal with Euronext. But if Theodore is not willing to pay up, fear not, Plan B will do.
And who knows, Dirty Den might just make it back in a few years’ time.
Willie’s welcome
BRITISH AIRWAYS must be delighted with the way Willie Walsh’s appointment as its new chief executive has been greeted. Despite the rather rushed nature of the announcement last week, most comments have been positive, and focused on the way Walsh reshaped Aer Lingus along the lines of Europe’s successful new wave of low-cost carriers.
But running Aer Lingus, one of Europe's second-tier airlines, is a far cry from managing a FTSE 100 company with more than 400 aircraft. Walsh may have been the best of the outside bunch, but it would be foolish to underestimate the magnitude of the challenge he has taken on at the age of 43.
