Offer by OM Group-Pt.5
London Stock Exchange
29 August 2000
PART 5 OF 5
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO AUSTRALIA, CANADA,
JAPAN OR THE UNITED STATES
OM GROUP
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OFFER FOR LONDON STOCK EXCHANGE PLC
-----------------------------------
APPENDIX VI
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ESTIMATED COST SAVINGS
----------------------
Statement of estimated cost savings prepared by OM
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1. OM expects significant synergies and operating efficiencies to be
achieved from the integration of the two businesses. Major
synergies are expected to arise from the implementation of OM's
trading platform on LSE and the integration of the associated IT
operations. Further benefits are expected from implementation of
OM's business model and the elimination of overlapping functions.
Based on a preliminary assessment and on the information outlined
below, OM believes that the New Group could achieve yearly pre-tax
cost savings rising to more than GBP30 million within four years.
The aggregate cash cost of achieving these synergies is expected to
be approximately GBP58 million. OM will create a restructuring
provision upon acquisition and this amount will therefore be
included in the goodwill arising from the transaction.
OM further believes there will be significant potential for
enhancement of income from trading service-related activities.
2. In arriving at this estimate in respect of cost savings, the
Directors have assumed that:
* the implementation of the OM trading platform
occurs by the middle of the second year following
completion of the Offer and that the relevant LSE systems
can be decommissioned during the third year;
* the existing systems outsourcing arrangements
expire in 2002 without any financial penalty for
termination; and
* no benefits have been assumed from potential
cost savings arising from vertical integration within
clearing and settlement systems
All amounts are given in current day prices.
3. The sources of information which the Directors have used to arrive
at this estimate include LSE's annual reports and accounts, the LSE
demutualisation circular, the iX merger offer document, as well as
limited information made available by LSE, together with the
Directors' knowledge of the industry.
4. The Directors have not been able to discuss with LSE's management
the reasonableness of the bases of their belief, as it relates to
LSE, supporting the Statement. As a result, the inherent risks in
relation to this forward looking statement are greater. Because of
this, and the fact that the changes relate to the future, the actual
cost savings could be materially different from those estimated.
Letter from Ernst & Young relating to OM's statement of
-------------------------------------------------------
estimated costs savings
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Ernst & Young AB
Adolf Fredriks Kyrkogata 2
SE-103 62 Stockholm
Sweden
The Directors
OM Gruppen AB
Norrlandsgatan 31
SE-105 78 Stockholm
Sweden
The Directors
Lazard Brothers & Co., Limited
21 Moorfields
London EC2P 2HT
United Kingdom
28 August 2000
Offer for London Stock Exchange plc
('LSE')
We refer to the statement regarding the estimate of cost savings ('the
Statement') made by OM
Responsibility
--------------
The Statement is the responsibility solely of the Directors of OM ('the
Directors'). It is our responsibility and that of Lazard Brothers & Co.,
Limited ('Lazard') to form respective opinions, as required by Note 8(b) to
Rule 19.1 of the City code on Takeovers and Mergers ('the Code'), as to
whether the Statement has been made by the Directors of OM with due care and
consideration.
Basis of opinion
----------------
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued by the Auditing Practices Board.
We have reviewed the relevant bases of belief (including sources of
information) and calculations underlying the Statement. We have discussed the
Statement together with the relevant bases of belief (including sources of
information) with the Directors and those officers and employees of OM who
developed the underlying plans and with Lazard. Our work did not involve any
independent examinations of any of the financial or other information
underlying the Statement. We have also considered the letter dated 28 August
2000 from Lazard to the Directors on the same matter.
We do not express any opinion as to the achievability of the cost savings
identified by the Directors.
Opinion
-------
In our opinion, based on the foregoing, the Statement by the Directors of OM
has been made with due care and consideration, in the context in which it was
made.
Our work in connection with the Statement has been undertaken solely for the
purposes of reporting under Note 8(b) to Rule 19.1 of the Code to the
Directors and to Lazard. We accept no responsibility to LSE or its
shareholders or any other person (other than the Directors and Lazard) in
respect of, arising out of or in connection with that work.
Yours faithfully
Ernst & Young
Letter from Lazard relating to OM's statement of estimated cost savings
-----------------------------------------------------------------------
Lazard Brothers & Co., Limited
21 Moorfields
London EC2P 2HT
United Kingdom
The Directors
OM Gruppen AB
Norrlandsgatan 31
SE-105 78 Stockholm
Sweden
28 August 2000
Dear Sirs,
Offer for London Stock Exchange plc ('LSE')
We refer to the statement of estimated cost savings (the 'Statement') made by
OM Gruppen AB ('OM') set out in Appendix VI to the offer announcement to be
published on 29 August 2000, for which the Directors of OM are solely
responsible.
We have discussed the Statement (including the bases and assumptions on which
it was made) with the Directors of OM and those officers and employees of OM
responsible for its compilation. We have also reviewed the work carried out
by Ernst & Young and have discussed with them the conclusions stated in their
letter of 28 August 2000 addressed to yourselves and ourselves on this matter.
We have relied upon the accuracy and completeness of all the financial and
other information reviewed by us and have assumed such accuracy and
completeness for the purposes of rendering this letter.
We do not express any opinion as to the achievability of the cost savings
identified by the Directors of OM.
This letter is provided solely to the Directors of OM in connection with Note
8(b) of Rule 19.1 of the City Code on Takeovers and Mergers and for no other
purpose. We accept no responsibility to LSE or its shareholders or any other
person other than the Directors of OM in respect of this letter.
On the basis of the foregoing, we consider that the Statement by OM, for which
the Directors of OM are solely responsible, has been made with due care and
consideration in the context in which it was made.
Yours faithfully
Jonathan Dawson
for and on behalf of
Lazard Brothers & Co., Limited
APPENDIX VII
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DEFINITIONS
-----------
The following definitions apply throughout the document, unless the context
otherwise requires:
AIM means the Alternative Investment
Market of LSE;
American Stock Exchange means The American Stock Exchange LLC;
Australian Stock Exchange means Australian Stock Exchange
Limited;
Board or Directors means the directors of either OM, LSE
or the New Group as the context
demands;
Canada means Canada, its provinces and
territories and all areas subject to
its jurisdiction or any political
subdivision of these;
CRESTCo means CRESTCo Limited;
CSDs means central securities depositories;
EGM means the Extraordinary General
Meeting of LSE to be held on 14
September 2000 (or any date to which
such meeting is adjourned)
Ernst & Young means Ernst & Young AB of Adolf
Fredriks Kyrkogata 2, SE-103 62
Stockholm, Sweden;
E*TRADE means E*TRADE Nordic AB;
Extranet means a system of computers that
enables particular organisations to
communicate with each other and share
information;
Financial Times means the daily newspaper printed by
The Financial Times Limited;
FSA means Financial Services Authority;
GBP means pounds sterling;
ISE means the International Securities
Exchange in New York;
iX iX - international exchanges plc
Jiway means the EURO100 million joint
venture between OM and Morgan Stanley
Dean Witter to create a screen-based
electronic market;
Lazard means Lazard Brothers & Co., Limited;
LCH means The London Clearing House
Limited;
LIFFE means London International Financial
Futures and Options Exchange plc;
LMIL means London Market Information Link;
Loan Note means the loan notes of OM Group to be
issued pursuant to the Loan Note
Alternative, the principal terms of
which are set out in Appendix III of
this document;
Loan Note Alternatives means the entitlement of LSE
Shareholders to elect to receive Loan
Notes in lieu of some or all of the
cash to which they would be entitled
to under the Offer
LSE means London Stock Exchange plc;
LSE Group means LSE and its subsidiary
undertakings;
LSE Group Associate means any partnership, joint venture,
firm or body corporate in which any
member of LSE Group may be interested;
LSE Shareholders means holders of LSE Shares;
LSE Shares means ordinary shares of 5p each in
the capital of LSE;
Morgan Stanley Dean Witter means Morgan Stanley Dean Witter &
Co.;
Nasdaq means The Nasdaq Stock Market Inc.;
National Discount Brokers means National Discount Brokers Group
Inc.;
New Group means the new group formed following
the implementation of the Offer in the
manner set out in this document;
new OM Shares means the new OM Shares which may be
issued by OM Group in connection with
the Offer to be made by Lazard on
behalf of OM Group;
NOREX means the combined markets of
Scandinavian countries;
Offer means the offer for LSE Shares to be
made by Lazard on behalf of OM Group
as described in Appendix I of this
document;
Official List means the Official List maintained by
the UK Listing Authority, pursuant to
Part IV of the Financial Services Act
1986;
OM or OM Group means OM Gruppen AB (publ);
OM Group Associate means any partnership, joint venture,
firm or body corporate in which any
member of the OM Group may be
interested;
OM London Exchange means OM London Exchange Ltd., a
subsidiary of OM;
OM Shares means the shares of SEK2 each in the
capital stock of OM;
OM Shareholders means the holders of OM Shares;
OM Stockholm Exchange means OM Stockholmsborsen AB;
Panel means The Panel on Takeovers and
Mergers;
Primary Markets means the markets on which shares are
initially admitted to listing and
trading;
RIE means Recognised Investment Exchange
as defined in section 207(1) of the
Financial Services Act 1986;
SEAQ means Stock Exchange Automated
Quotation System;
SEAQ Auctions means the auction market mechanism for
SEAQ stocks operated by the London
Stock Exchange;
SEATS PLUS means the trading service used for AIM
securities and some other securities;
Secondary Markets means the trading in shares after
their initial issue;
SEK means Swedish Krona;
SETS means the order book trade execution
systems of the London Stock Exchange;
Stockholm Stock Exchange means OM Stockholm Stock Exchange;
Tandem means a brand of computers
manufactured by Compaq Computer
Corporation Inc.;
the Deutsche Borse means the Deutsche Borse AG;
the iX transaction or the iX merger means the proposed merger announced on
3 May 2000 between LSE and the
Deutsche Borse;
the OM Group means OM and its subsidiary
undertakings;
the wider LSE Group means LSE Group and LSE Group
Associates;
the wider OM Group means the OM Group and the OM Group
Associates;
United Kingdom or UK means the United Kingdom of Great
Britain and Northern Ireland;
UNIX means the UNIX operating system;
UK Power Exchange means the spot and futures market in
UK electricity which is being operated
by OM London Exchange;
United States or US means the United States of America,
its territories and possessions, any
state of the United States of America
and the District of Columbia;
VPC means VPC AB, the Swedish Central
securities despository; and
XML means Extended Mark-up Language.
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