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Wednesday, 3 May, 2000, 10:59 GMT 11:59 UK
Market merger: Full Statement
The London Stock Exchange and Deutsche Boerse have announced plans to merge and a link-up with the Nasdaq market. BBC News Online documents the full statement issued by both exchanges.

London Stock Exchange and Deutsche Börse to merge to create iX
Agreement with Nasdaq to create a high growth market

1. INTRODUCTION



The Merger will provide a well-regulated, single trading platform for all European securities, and ... provide a basis for developing a global market.

The Management Board and Supervisory Board of Deutsche Börse 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 Börse's businesses, except for Deutsche Börse's 50 per cent stake in Clearstream, which Deutsche Börse 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 Börse will receive new iX Shares amounting to 50 per cent. of iX's issued share capital.

Deutsche Börse will hold its stake in Clearstream and its stake in iX on behalf of Deutsche Börse 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 Börse (other than Deutsche Börse'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 Börse are operating in a rapidly changing environment. The Boards of London Stock Exchange and Deutsche Börse 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 Börse 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



Subject to market conditions and consultation, the aim is for all European equity trading ultimately to be undertaken in Euros.

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 Börse'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 Börse's interest in Clearstream will continue to be held by Deutsche Börse, but is not included in the Merger to form iX.

The Boards of London Stock Exchange and Deutsche Börse 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 Börse 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 Börse 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 Börse envisage that other exchanges may become part of the iX Group in due course, on appropriate terms.

London Stock Exchange and Deutsche Börse 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 Börse believe that the proposed Merger will create significant value for shareholders.

Specifically, the Boards of London Stock Exchange and Deutsche Börse 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 Börse 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 Börse believe that iX's competitive position will be significantly stronger than that of each of London Stock Exchange and Deutsche Börse 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 Börse 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 Börse 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 Börse Groups will be fully safeguarded.

6. DETAILS OF THE MERGER

A summary of the terms of the Merger is set out below:

  • Deutsche Börse 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 Börse 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 Börse, 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 Börse.

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 Börse 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 Börse Shareholders as soon as practicable.

This documentation will include the notices of the required meetings of London Stock Exchange and Deutsche Börse 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 Börse 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 Börse is being advised on the proposed Merger by Goldman Sachs.

3 May 2000

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