Merger with Deutsche Borse to Create iX
London Stock Exchange
3 May 2000
London Stock Exchange and Deutsche Borse to merge to create iX
Agreement with Nasdaq to create a high growth market
London Stock Exchange and Deutsche Borse today announce their plans for a
merger of equals to create a new company, to be called iX. In addition, iX
and Nasdaq have signed a memorandum of understanding to create a
pan-European, high growth market.
iX will be the leading international integrated exchange organisation,
offering trading and information products for equities, commodities and
derivatives, together with a core exchange systems technology competence and
an increasing emphasis on new e-commerce businesses. iX will provide the
largest European stock market, with 53 per cent. of traded volume and,
through Eurex, the biggest derivatives market worldwide.
iX will consist of all of London Stock Exchange's and Deutsche Borse's
businesses, except for Deutsche Borse's 50 per cent. stake in Clearstream,
which Deutsche Borse will continue to hold. London Stock Exchange
Shareholders will receive shares amounting to 50 per cent. of iX's issued
share capital and Deutsche Borse will receive shares amounting to 50 per
cent. of iX's issued share capital. The Chairman of iX will be Don
Cruickshank and Werner Seifert will become the Chief Executive.
iX will be based in and managed from London with major operations in
Frankfurt. 45 per cent. of Europe's top 300 companies already have their
primary listing on the London or Frankfurt exchanges. The compound annual
growth in trading in the securities of London Stock Exchange and Deutsche
Borse on a combined basis exceeds 35 per cent. over 4 years.
The electronic trading platform for all iX cash markets will be Xetra. This
is expected to result in significant cost savings and other synergies and
reduction of complexity for IT operations of iX and its customers.
Deutsche Borse and London Stock Exchange will support initiatives to set up a
central counterparty and establish straight through processing at lowest cost
for market participants. In the meantime, settlement will continue to be
provided by Clearstream and CrestCo Limited.
The new joint venture with Nasdaq will bring together London's techMARK and
Germany's Neuer Markt as the basis of the new pan-European high growth
market. It will represent Europe's biggest high growth market with a market
share of around 80 per cent. of traded volume. iX and Nasdaq will be equal
shareholders in the joint venture that will be incorporated in and managed
from London and operated in Frankfurt.
London Stock Exchange and Deutsche Borse envisage that other exchanges may
become part of the iX Group in due course. As part of the further integration
in Europe, discussions have commenced with Milan and Madrid.
Commenting on the proposed Merger, Don Cruickshank, Chairman designate of
London Stock Exchange and iX, said: 'These transactions mark a major step
forward. They provide us with the opportunity to build a global market and we
look forward to working to deliver the strategic vision we have outlined
today.'
Werner Seifert, Chief Executive of Deutsche Borse and CEO designate of iX,
said: 'This merger will create benefits for investors, issuers and
intermediaries regardless of their size: all market participants will benefit
from lower spreads due to higher liquidity. Especially smaller trading firms
will benefit from Xetra's proven track record in providing remote access.
Retail investors will benefit from a wider choice of products. iX will
provide a level playing field for all market participants.'
Frank Zarb, CEO of Nasdaq, commenting today said: 'This is an important day
for investors throughout Europe and in the history of European financial
markets. I believe that the combination of iX and Nasdaq Europe will create a
powerful pan-European trading platform, custom-designed for the investment
opportunities created by our fast growing digital age.'
Notes to editors
Details of the Merger, which is subject to shareholder and regulatory
approvals, are attached. This summary should be read in the context of the
full text of this announcement.
There will be a press conference at 10.30am today at The Conference Forum,
The Marsh, London E1.
3 May 2000
______________________________________________________________________________
PRESS ENQUIRIES
Deutsche Borse +49 69 21 011500 London Stock Exchange 020 7797 1222
Walter Allwicher Kay Dixon
Jeremy Hughes
Goldman Sachs +49 69 7532 1000 Schroders 020 7658 6000
Stefan Jentzsch Philip Robert-Tissot
Nasdaq Merrill Lynch 020 7628 1000
Maggie Kelly 020 7825 5512 Guy Dawson
Andrew McMillan +1 212 858 4150
Scott Peterson +1 202 728 8955
Citigate Dewe Rogerson (for Nasdaq) Brunswick (for LSE)
Patrick Donovan 020 7638 9571 Derek Bainbridge 020 7404 5959
Simon Rigby
Schroders, Merrill Lynch and Cazenove & Co., which are regulated in the
United Kingdom by The Securities and Futures Authority Limited, are acting
for London Stock Exchange and for no one else in connection with the Merger,
and will not be responsible to anyone other than London Stock Exchange for
providing the protections afforded to the respective customers of Schroders,
Merrill Lynch and Cazenove & Co. or for providing advice in relation to the
Merger.
Goldman, Sachs & Co. oHG is acting for Deutsche Borse in connection with the
Merger and for no one else and will not be responsible to anyone other than
Deutsche Borse for providing the protections afforded to customers of Goldman
Sachs or any of its affiliates or for providing advice in relation to the
Merger.
Schroders and Merrill Lynch have approved the contents of this announcement
for the purposes of section 57 of the Financial Services Act 1986.
London Stock Exchange and Deutsche Borse to merge to create iX
Agreement with Nasdaq to create a high growth market
1. INTRODUCTION
The Management Board and Supervisory Board of Deutsche Borse and the Board of
London Stock Exchange announce that they have agreed the terms of a merger of
equals to create a new company, iX-international exchanges plc. iX, to be
incorporated in England, will consist of all of London Stock Exchange's and
Deutsche Borse's businesses, except for Deutsche Borse's 50 per cent. stake
in Clearstream, which Deutsche Borse will continue to hold.
Under the terms of the Merger, London Stock Exchange Shareholders will
receive new iX Shares amounting, in aggregate, to 50 per cent. of iX's issued
share capital and Deutsche Borse will receive new iX Shares amounting to 50
per cent. of iX's issued share capital. Deutsche Borse will hold its stake in
Clearstream and its stake in iX on behalf of Deutsche Borse Shareholders.
In addition, Nasdaq Europe Ltd. and iX will develop a globally linked market
for pan-European, high growth equities. Nasdaq and iX also intend to enter
into discussions on further business co-operation, including cross
shareholding arrangements and the examination of prospects for combined
efforts to create a global platform, making use of the Nasdaq brand.
iX
iX will be created through the combination of all the businesses of London
Stock Exchange and Deutsche Borse (other than Deutsche Borse's interest in
Clearstream) as a merger of equals through a newly created company,
incorporated in England.
iX will be the leading European exchange in terms of volume and value of
equity trading. iX will aim to develop and grow iX by delivering a wide range
of services to customers on a domestic and cross-border basis.
A key element of the shared vision is the agreed strategy of iX that
secondary market trading facilities will be provided on a unified,
Xetra-based technology platform, using a common market model and regulatory
approach, offering trading in all European equities.
2. BACKGROUND TO THE MERGER AND JOINT VENTURE BETWEEN iX AND NASDAQ
The London Stock Exchange and Deutsche Borse are operating in a rapidly
changing environment. The Boards of London Stock Exchange and Deutsche Borse
believe that the major external factors affecting the operating environment
are as follow:
* deregulation and liberalisation of economies globally;
* demographic pressure to fund long-term pension liabilities;
* technological developments in communications and business systems;
* market consolidation amongst securities market participants; and
* increasing competition.
In particular, as worldwide securities markets become increasingly
homogeneous and competitive, the current number of exchanges is not expected
to remain viable. In consequence, exchanges worldwide are reviewing their
ownership structures and exchanges in Europe have begun the process of
consolidation.
As a result, Deutsche Borse and London Stock Exchange believe that the Merger
will provide a well-regulated, single trading platform for all European
securities, and, through the joint venture with Nasdaq, provide a basis for
developing a global market.
3. STRATEGY
iX
iX will be the leading European exchange in terms of volume and value of
equity trading. It is intended that secondary market trading facilities will
be provided on a unified, Xetra-based technology platform, using a common
market model and regulatory approach, offering trading in all European
equities. Subject to market conditions and consultation, the aim is for all
European equity trading ultimately to be undertaken in Euros.
Markets will be organised as necessary, with local presence if required for
regulatory, marketing or commercial reasons. It is not envisaged that there
will be any change in the regulatory arrangements for national markets.
Technology
The technology of both organisations will be transferred to an operating
subsidiary of iX. Deutsche Borse's existing systems subsidiary will be the
main provider of technical services to iX, and will remain based in Germany,
with local systems support also provided in London.
Derivative trading, clearing and settlement
It is intended that Eurex and Eurex Clearing will continue to provide the
trading platform and clearing services for futures and options trading in all
major instruments. Regulation of such trading will remain unchanged.
Clearing services
It is intended that trading on the unified pan-European market will
ultimately feed one central counterparty offering the maximum benefits to
customers.
Settlement services
Deutsche Borse's interest in Clearstream will continue to be held by Deutsche
Borse, but is not included in the Merger to form iX. The Boards of London
Stock Exchange and Deutsche Borse consider that settlement should ultimately
be delivered on a consolidated pan-European basis, subject to relevant
domestic requirements and structures. iX will consult users for their views
on the management, ownership and structure of potential settlement
infrastructure. In the meantime, clearing and settlement will continue to be
provided by Clearstream and CrestCo Limited.
Information services
The Boards of London Stock Exchange and Deutsche Borse believe that the
Merger and the creation of a unified pan-European market will increase the
range and depth of market information and company news available to iX. This
information will be delivered by appropriate means to market users and
customers to deliver maximum market visibility, efficiency and added value.
iX will develop a unified strategy for a family of relevant securities'
indices in respect of the securities traded on its markets.
Other
iX will leverage the core competencies of Deutsche Borse and London Stock
Exchange in designing and building market and trading systems and will adopt
a business model that uses these skills and its platform to deliver other
business services, such as services to third party exchanges, '.com' trading
services, energy exchanges, business to business services, and over the
counter ('OTC') bond trading facilities.
London Stock Exchange and Deutsche Borse envisage that other exchanges may
become part of the iX Group in due course, on appropriate terms. As part of
the further integration in Europe, discussions have commenced with Milan and
Madrid.
Nasdaq-iX joint venture
Nasdaq Europe Ltd. and iX have agreed to enter into a joint venture to
develop a market for pan-European, high growth equities. The Nasdaq-iX joint
venture will be owned 50 per cent. by Nasdaq Europe Ltd. and 50 per cent. by
iX. It will be incorporated in England, headquartered in and managed from
London, will carry the brand 'Nasdaq' and will operate in Frankfurt under
German regulation.
The partners intend this market to be the pre-eminent market for the listing
and trading of pan-European high growth equities and will develop and market
associated indices. It will also offer the opportunity for trading
international securities and exchange traded funds and indices and the market
will be linked to the other Nasdaq branded markets.
The Nasdaq-iX joint venture will adopt the optimum market structure for the
securities traded on its platform. This market model will offer a combination
of integrated, order driven and quote driven elements for maximum liquidity
and transparency, with dealers able to internalise and report trades through
the market's facilities.
The trading and network platform for the Nasdaq-iX joint venture will be the
Xetra system. The parties will co-operate in designing and developing the
'next generation' trading functionality in consultation with market
participants.
4. BENEFITS OF THE MERGER
iX will be managed with the objective of maximising shareholder value. The
Boards of London Stock Exchange and Deutsche Borse believe that the proposed
Merger will create significant value for shareholders. Specifically, the
Boards of London Stock Exchange and Deutsche Borse believe that synergies
will arise in the following areas:
* the combined trading platform should attract trading volumes from other
markets, allowing iX to deliver higher revenue growth than each of London
Stock Exchange and Deutsche Borse could achieve alone;
* higher trading volumes through the combined platform should result in
higher operating margins; and
* significant cost savings should accrue in technology and systems.
The Boards of London Stock Exchange and Deutsche Borse believe that iX's
competitive position will be significantly stronger than that of each of
London Stock Exchange and Deutsche Borse alone.
5. BOARD, MANAGEMENT AND EMPLOYEES
iX will have a single Board comprising executive and non-executive directors
operating in line with the UK corporate governance model. London Stock
Exchange and Deutsche Borse will be equally represented on the Board. Don
Cruickshank is to be non-executive Chairman and Werner Seifert is to be Chief
Executive. All other executive and non-executive directors will be appointed
in due course. iX will be headquartered in London and English will be the
management and operating language of the Group.
The Boards of London Stock Exchange and Deutsche Borse believe that the
Merger will create exciting prospects for the employees of iX. Existing
employment rights, including pension rights, of employees of both London
Stock Exchange and Deutsche Borse Groups will be fully safeguarded.
6. DETAILS OF THE MERGER
A summary of the terms of the Merger is set out below:
* Deutsche Borse will transfer all of its businesses and assets (other than
those relating to Clearstream) to a new subsidiary ('NewCo').
* NewCo and London Stock Exchange will be merged into iX.
* The Merger will be effected by way of a scheme of arrangement to acquire
all of the London Stock Exchange Shares in exchange for new iX Shares and a
share exchange offer by iX to Deutsche Borse to acquire all of the NewCo
Shares in exchange for new iX Shares.
* The transaction is conditional on approval by the shareholders of London
Stock Exchange and Deutsche Borse, with a 75 per cent. majority vote required
in each case.
* The transaction is also conditional on competition and regulatory consents
in the UK and Germany.
* Following completion of the Merger, iX's Shares will be held as to 50 per
cent. by London Stock Exchange Shareholders and 50 per cent. by Deutsche
Borse.
7. SHAREHOLDINGS, LISTINGS AND DEALINGS
The articles of association of iX will contain a limit on shareholdings of
not more than 4.9 per cent. for any shareholder or group of connected
shareholders. Deutsche Borse will be permitted to maintain but not increase
its 50 per cent. holding in iX and will distribute that shareholding to its
shareholders as soon as practicable. All matters requiring the approval of iX
Shareholders will require a 75 per cent. majority vote.
Shares in London Stock Exchange will become tradable on an off-market,
matched bargain dealing facility provided by Cazenove & Co. following posting
of the London Stock Exchange Scheme documentation. It is the current
intention of iX to put in place a similar trading arrangement for iX's shares
following completion of the Merger.
Any decision on a listing of iX will be kept under review in the light of
progress made on the development of the iX business.
8. DOCUMENTATION AND TIMETABLE
It is intended that the formal documentation relating to the Merger will be
despatched to London Stock Exchange and Deutsche Borse Shareholders as soon
as practicable. This documentation will include the notices of the required
meetings of London Stock Exchange and Deutsche Borse Shareholders and full
details of the London Stock Exchange Scheme, and will specify the necessary
actions to be taken by both London Stock Exchange and Deutsche Borse
Shareholders. Completion of the Merger is expected to take place in the
autumn of 2000.
9. ADVISERS
London Stock Exchange is being advised on the proposed Merger by Schroders
and Merrill Lynch. Deutsche Borse is being advised on the proposed Merger by
Goldman Sachs.
3 May 2000
Appendix
DEFINITIONS
'Clearstream' Clearstream International S.A.,
Luxembourg;
'Group' in respect of any company, such
company and its subsidiaries;
'Deutsche Borse' Deutsche Borse AG;
'Deutsche Borse Shareholders' the holders of Deutsche Borse Shares;
'Deutsche Borse Shares' the 7,340,000 issued ordinary shares
with no par value in the capital of
Deutsche Borse;
'Goldman Sachs' Goldman, Sachs & Co. oHG;
'iX' iX-international exchanges plc;
'iX Shares' the issued ordinary shares of 5p each
in the capital of iX;
'London Stock Exchange' London Stock Exchange Limited;
'London Stock Exchange Scheme' a scheme of arrangement of London
Stock Exchange pursuant to section
425 of the UK Companies Act 1985
(including the cancellation of London
Stock Exchange Shares involved
therein);
'London Stock Exchange the holders of London Stock Exchange
Shareholders' Shares;
'London Stock Exchange Shares' the 29,700,000 issued ordinary shares
of 5p each in the capital of London
Stock Exchange;
'Merrill Lynch' Merrill Lynch International;
'Merger' the proposed merger of London Stock
Exchange and the business, assets and
liabilities of Deutsche Borse (other
than those relating to Clearstream)
which are to be transferred to a new
subsidiary ('NewCo') of Deutsche
Borse to be effected by the
acquisition of London Stock Exchange
by iX in exchange for new iX Shares
to be issued to London Stock Exchange
Shareholders pursuant to the London
Stock Exchange Scheme and the
acquisition of the issued share
capital of NewCo by iX in exchange
for new iX Shares to be issued to
Deutsche Borse;
'Nasdaq' The Nasdaq Stock Market;
'Recognised Investment Exchange' recognised investment exchange as
defined in section 207 UK Financial
Services Act 1986;
'Schroders' J. Henry Schroder & Co. Limited;
'UK' the United Kingdom of Great Britain
and Northern Ireland.
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