The London Stock exchange has opened its defence against Nasdaq's hostile takeover bid by urging investors to reject the US exchange's "wholly inadequate offer", which it says substantially undervalues the group and its future earnings potential.
In a circular to shareholders, the LSE says it expects adjusted EPS for 2006 of 50.4 pence, an increase of 58% compared with last year. It also promises to pay a total dividend of at least 18 pence per share in 2007, an increase of 50%.
Chris Gibson-Smith, LSE chairman, comments: "Over the last twelve months, records have tumbled in terms of money raised as well as the volume and value of trading on our markets. For the second time this year, Nasdaq is offering a wholly inadequate price for the company and shareholders should reject the offer."
He further points out that Nasdaq’s final offer is the lowest price it can currently tender under the Takeover Code. The offer values the LSE at a multiple of 24.7x adjusted basic EPS for the 12 months to 31 December 2006, lower than the multiple of 29.8x adjusted earnings for the 12 months to 31 December 2005 from Nasdaq’s withdrawn proposal in March 2006 and also lower than the 30.1x trading multiple commanded by Euronext.
Naasdaq, for its part, has been touring leading investors in the LSE in an effort to convince larger shaeholders that its offer is final and fair. Reports back from the meetings say the US exchange has been looking to spook investors by talking up the threat from alternative trading systems and potential new entrants such as Project Turquoise - the dealer-backed consortium which is looking to build a rival share trading platform.
In a reponse to the LSE bid defence circular, issued this afternoon, Nasdaq states: "The LSE defence circular completely fails to address the concerns of users and the implications of the increased level of competition that will be introduced with the regulatory changes which will occur in 2007."
The US exchange goes on to claim that the LSE has failed to adequately share the benefits of its growth with its customer base and that recent reductions in charges for post trade services have been made by by entities which are not owned by LSE such as CrestCo and LCH.Clearnet.
Nasdaq president and CEO Robert Greifeld comments: "The board of LSE is ignoring the elephant in the room at its peril. Its recent growth in revenues has taken place without a proper sharing of benefits with users. Regulatory changes, increased consolidation and customer group competition are likely to bring significant downward pressure on LSE's revenue model going forward.
There is nothing in the circular which causes us to change our view on value."
Elsewhere in the exchange consolidation space, Euronext shareholders voted overhwelmingly in favour of a $28bn tie-up with the New York Stock Exchange. More than 98% of investors approved the deal. An imminent vote by Nyse members will seal the agreement between the two, leading to the creation of a supra trans-Atlantic share market.