Were the latest manoeuvre from Australia’s Macquarie Bank for Europe’s premier exchange, which slaps an indicative value of up to £1.48bn - or, 580p a share - to succeed, the bank could well be paying top dollar. It is thought that even according to Macquarie’s own analysis, fair value for LSE shares is nearer to £5 than £6.
Rather curiously, Macquarie’s latest offer stated that “constant speculation had continued to support the LSE’s share price…above any level justified by the fundamental outlook for the LSE business.”
While some LSE shareholders have intimated that they are holding out for a cash bid of £7 per share minimum, Macquarie views the LSE’s share price as not justified on fundamentals. At the close of trading on 9 December, the shares yielded 1.5 per cent and were trading on a P/E ratio of 22.2.
Alasdair Haynes, chief executive officer of agency broker ITG (Europe), commenting following the UK Competition Commission’s ruling on the proposed takeovers by Euronext and Deutsche Boerse, said: “Our fundamental position has not really changed. We’ve always maintained that three exchanges going down into two is anti-competitive and we thought the Competition Commission would put in this issue regarding clearing.”
“I’ve always believed that the LSE will remain independent for that very reason [controls on clearing],” Mr Haynes said. “In the case of Euronext, price is the issue, and don’t believe they would disinvest their interest in LCH.Clearnet…then pay up on the price.”
Despite what the LSE may say officially, pressure may be building up inside stock exchange towers at Paternoster Square to forge a merger or takeover. Any recommended bid for the LSE would require majority (75 per cent) acceptance among LSE shareholders.
“Given the fact that MiFID is fast approaching, the competition in financial services will get significantly tougher for the exchanges going forward,” Mr Haynes added. Economies of scale become rather important, and it’s “understandable” why boosting the LSE’s revenues in the short term and making the deal looks good for them. Systematic internalisation by the big investment banks could also significantly dent the revenues of exchanges in future.
Defending its position, the LSE published figures in December indicating that 2005 would be a record year for equity trading across its markets with a year-to-date growth rate in the number of trades to November of 23 per cent, and SETS heading for a record £1000bn in value traded in 2005. RA
