Press releases 2000
5 October 2000
LONDON STOCK EXCHANGE PLC
RAISES NEW QUESTIONS ABOUT OM GRUPPEN
London Stock Exchange plc today publishes a further circular in response to the offer by OM Gruppen AB to acquire the Company.
OM achieved a negligible level of acceptances of around 1% at its first closing date. This endorses the Board's view that OM is offering wholly inadequate value to London Stock Exchange's shareholders and no proven benefits for customers.
The purpose of the circular is to explain in greater detail why
- OM's technology offers no proven benefits
- OM's shares are of uncertain value
- OM's ownership, control and governance raise numerous questions
Don Cruickshank, Chairman of the London Stock Exchange said:
"Today's document demonstrates that OM's proposal for the London Stock Exchange does not stand up to critical examination. Not only is OM's offer inadequate, it also makes no commercial sense.
"As we have made clear, the London Stock Exchange is not up for sale. Our strategy may involve doing deals but it does not necessarily have to. That is our consistent message to all those who have an interest in our future ownership.
"By dismissing OM and engaging in a full consultation process, London Stock Exchange's shareholders and customers will have real influence over our future development."
OM'S TECHNOLOGY OFFERS NO PROVEN BENEFITS
London Stock Exchange already has robust, reliable and scaleable technology
- Since 1994, it has invested over 185 million as part of its long-term investment programme in technology
- London Stock Exchange's system capacity
- is already over 8 times the level of average total trades per day
- following upgrade will be over 16 times the level of average total trades per day
- has demonstrated its ability to cope with peaks in customer demand and trading volumes
- London Stock Exchange's ability to more than double existing capacity through upgrading has already been thoroughly tested and verified and will provide appropriate headroom to accommodate expected continuing growth in market volumes
OM lacks scale in equity trading
- OM provides its equity trading technology, SAXESS, to only two small-scale exchanges, OM Stockholm and Copenhagen
- London Stock Exchange
- is over 8x larger than OM's Stockholm and Copenhagen equity exchanges in terms of annual value of shares traded
- has over 3x as many members as OM's Stockholm and Copenhagen equity exchanges
- OM has failed to deliver upgrades on schedule - with delays ranging from 10 days to 9 months
- OM's equity trading system, SAXESS, has experienced numerous full or partial systems outages and delays with no fewer than 18 in the period from 22 April 1999 to 31 August 2000 disclosed on OM's own website
- London Stock Exchange has had only one outage in the last 18 months and has taken decisive steps to prevent a recurrence
OM'S SHARES ARE OF UNCERTAIN VALUE
Is OM really a technology business or is it driven by its Transaction business area ?
- The OM shares being offered to London Stock Exchange's shareholders are currently trading at
- 78 times historical earnings
- over four times the level of one year ago
- In each of the two and a half years ended June 2000, OM's Technology business area accounts for
- only 38% or less of revenues
- only 9% or less of earnings before interest and taxation (EBIT)
- OM's Transaction business area accounts for
- 62% or more of revenues
- 91% or more of EBIT
How reliable are OM's equity trading revenues ?
- Trading in the ten most liquid stocks on OM Stockholm accounted for 68 per cent. of total value of trading turnover in 1999
- For the three most liquid stocks traded on OM Stockholm, Nokia, AstraZeneca and Ericsson, a significant proportion of the trading activity takes place on other exchanges
Does OM's financial record stand up to scrutiny ?
- OM's EBIT margins have declined from 37% in 1995 to only 24% in the six months to 30 June 2000
- OM's management have set themselves a "20/20" performance target - 20% growth in revenues per annum and 20% return on shareholders' equity - OM has failed to meet its 20/20 target in four of the last five years
- OM has an unimpressive earnings record - EPS has increased at a compound annual rate of only 2.3% from 1995 to 1999
- It is unusual for a "technology" company to pay out the majority of its reported earnings as dividends
- OM has only just managed to cover its dividend with reported earnings in each of the last three years
Jiway appears to represent a significant proportion of OM's current share price - the value of Jiway is uncertain
- It is an untested business proposition, only scheduled to start operations in November 2000
- It is 40% owned by a single US investment bank
- If it is to be run as a separate business from the London Stock Exchange, how will the separate organisations "collaborate to achieve common benefits" when both are competing for the same retail business?
OM'S OWNERSHIP, CONTROL AND GOVERNANCE RAISE NUMEROUS QUESTIONS
OM shares are tightly controlled
- OM's board includes members who either themselves hold, or represent shareholders who hold, 40% in aggregate of OM's issued share capital
- Within this 40%
- the Swedish State owns 9.5%
- Investor, an investment vehicle of the Wallenberg family, owns 15.3%
- the chairman of OM Gruppen, Olof Stenhammar, and related companies, owns 4.2% of OM's issued share capital. Mr Stenhammar is related to the Wallenberg family
The increasing interest of the Swedish State in OM
- The Swedish State has said that it expected to achieve a 10 per cent. holding in OM which, if achieved, would give the Swedish State certain rights to prevent a third party from gaining full control of OM Gruppen
- Since 30 June 2000, the Swedish State has increased its shareholding in OM from 7.7 per cent. to 9.5 per cent.
- Trading in OM shares in the period prior to the launch of OM's offer for the London Stock Exchange is presently under investigation by the Swedish Financial Supervisory Authority
The OM Chairman's profit related licence agreement
- A company owned by Mr Stenhammar receives a profit related licence payment of 1% of OM's income after financial items. This licence agreement has a twenty year term and does not expire until 2005
- OM's offer document explicitly states that "should the income of OM increase as a result of the offer thenthe profit related payment payable to the Chairman of 1% of OM's income after financial items will also increase"
- Why should Mr Stenhammar be rewarded simply for OM acquiring the London Stock Exchange ?