Deutsche Boerse Ends Bid to Purchase LSE
WSJ.com - Deutsche Boerse Ends Bid to Purchase LSE
Deutsche Boerse Ends
Bid to Purchase LSE
Big Shareholder Opposition
Triggers Stunning Reversal;
Euronext May Now Step Up
By DAVID REILLY in London and EDWARD TAYLOR in Frankfurt
Staff Reporters of THE WALL STREET JOURNAL
March 7, 2005; Page C3
After an emergency management-board meeting Sunday, Deutsche Boerse AG dropped its proposed bid to pay £1.3 billion ($2.5 billion or €1.89 billion) for London Stock Exchange PLC amid mounting shareholder opposition to Chief Executive Werner Seifert's acquisition plan.
Dissident shareholders now own between 50% and 60% of Deutsche Boerse's stock, according to public statements from involved firms, private letters of opposition sent to Deutsche Boerse and people familiar with the matter.
The move to abandon the bid raises questions about the future of Mr. Seifert, who has once before tried and failed to buy LSE in his drive to outpace rival exchange operator Euronext NV and kick-start consolidation among European stock exchanges. Mr. Seifert faces an arduous task of repairing badly frayed relations with a majority of shareholders of the German stock exchange operator.
A spokesman for Deutsche Boerse declined to comment on Mr. Seifert Sunday.
Sunday's change marked a stunning reversal, as Mr. Seifert's talks to buy LSE have been public since last December.
Deutsche Boerse's exit leaves open the door for Euronext to buy the London exchange. Euronext, based in the Netherlands, is also considering a bid for the London exchange operator. Both LSE and Euronext would have to seek shareholder approval for such a move under United Kingdom and Dutch laws.
In a statement Sunday night, Deutsche Boerse said it reserves the right to return with a new offer if Euronext or another third party makes an offer for LSE.
Spokesmen for Euronext and LSE declined to comment until they had reviewed Deutsche Boerse's statement.
Pressure on Mr. Seifert had mounted. Some of the dissident shareholders had publicly said they are preparing an attempt to vote out the company's supervisory board at its annual shareholders' meeting, which is set for May. In Germany, companies often have two boards: a supervisory board of mostly nonexecutive directors and a management board of insider directors.
No Choice
"We strongly believe the majority of shareholders are publicly and privately against this deal and the company is aware of this," said Chris Hohn, managing partner of London-based hedge fund Children's Investment Fund Management (UK) LLP, which is known as TCI and has been the leading opponent to an LSE takeover.
After Deutsche Boerse's decision, Mr. Hohn declined to comment on it and on what course of action the dissident shareholders might now take.
Mr. Hohn and many dissident shareholders argued in recent days that acquiring LSE would have destroyed shareholder value and that the company's cash pile of more than €600 million would be better spent buying back its own shares and paying out higher dividends.
Some dissidents said they had no choice but to seek the board's removal because Deutsche Boerse has refused to put its decision to acquire LSE to a shareholder vote. Under German law, the company isn't required to seek shareholder approval for such a move.
The battle dividing Deutsche Boerse is the latest instance of hedge funds buying up stakes in companies that are in the midst of acquisition bids in an attempt to influence the outcome of a deal.
In Deutsche Boerse's case, however, the fight has spread to include other major investors such as Fidelity Investments.
The clash showcases how European shareholders are starting to take a more active role, something they have lagged behind U.S. investors in doing.
While the rebellion has been led by U.K. and U.S. hedge funds, such as TCI and Atticus Capital of New York, a number of significant institutional investors have joined rank including Fidelity, Merrill Lynch Investment Managers, the asset-management unit of Merrill Lynch & Co., and, in recent days, Generali Asset Management, the fund-management arm of Italian insurer Generali Group.
Signaled to Management
In addition to those heavyweight investors, two large U.S. institutions with big holdings in Deutsche Boerse signaled to management over the weekend that they, too, opposed an LSE takeover, said a person familiar with the matter, who declined to identify these investors.
Mr. Seifert, along with Deutsche Boerse's supervisory-board chairman, Rolf Breuer, who is also chairman of Deutsche Bank AG, had played down the threat posed by dissident shareholders, arguing that a majority of shareholders supported an LSE acquisition, in recent weeks.
Only two big shareholders, Union Investment of Germany and State Street Global Advisors, the investment-management arm of State Street Corp. of the U.S., however, publicly stated their support for an LSE bid.
Recently, the rebels appeared to have the momentum. Deutsche Boerse's shares last week traded at volumes twice the typical daily average.
Market participants said it appeared the buyers were U.S. and U.K. hedge funds betting that Mr. Seifert would be either forced out or back down from an LSE bid, opening the door to share buybacks that could boost the stock's value.
Write to David Reilly at david.reilly@wsj.com1 and Edward Taylor at edward.taylor@wsj.com2
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