Transcript Euronext - Arthur W. Page Society

Euronext N.V.:
The Fight for LIFFE
The Fight for LIFFE
Late August 2001: LIFFE*, the prestigious British
derivatives exchange, is up for auction.
For Euronext - a newly minted combination of the former
Paris, Amsterdam and Brussels stock exchanges – this
could be a perfect opportunity to position itself as one of the
consolidators in the industry, rather than waiting to become
one of the consolidatees.
But the prize will not come easily. In the battle for LIFFE,
Euronext will be up against the two biggest and most
powerful stock exchanges in Europe, and one of them will
be fighting on home ground….
* London International Financial Futures and Options Exchange
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Euronext’s Challenge
How can Euronext communications chief
Thierry Barthez and CEO Jean-François
Théodore succeed where others have failed,
in persuading a London exchange to sell out
to a little-known foreign buyer?
(for an idea of the challenge this represents:
imagine a French-controlled company being
allowed to buy NASDAQ or the Chicago Mercantile
Exchange!)
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What is an Exchange?
• A marketplace, physical or virtual, where
participants trade one or more types of financial
products, such as:
–
–
–
–
Stocks and stock indices (known as “cash” markets)
Derivatives e.g. options, warrants, futures
Commodities e.g. metals, oil, cocoa
Currencies
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What is Euronext?
• A cross-border stock and derivatives
exchange
• Formed in 2000 from merger of Paris,
Amsterdam and Brussels exchanges (the
first ever successful merger in the
industry)
• Became a public company in July 2001
IPO
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The Battlefield
• What kind of industry is this?
– Highly fragmented into regulated local monopoly
markets (18+ national stock exchanges in Europe)
– Most exchanges owned/operated as mutual-cooperatives
– Customers are financial institutions, not the general
public
• What dynamics are operating within it?
– Global market forces and financial institutions pushing
for larger pools of capital, more liquidity, lower trading
costs, ease of cross border transactions
– Political interests seeking to preserve national
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exchanges
Signs of Change?
• Changes in ownership status and structure
– Deutsche Börse (DBAG), London Stock
Exchange (LSE) & Euronext become public
listed companies in 2001
• Beginnings of merger activity:
– Euronext born in 2000 from three-way merger,
creating #3 exchange in Europe.
– DBAG attempts, unsuccessfully, to merge with
the LSE in 2000, as does OM, operator of the
Stockholm Stock Exchange.
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The Battlefield
How the combatants compare
LIFFE
-
#3
€144m+
LSE
#1
-
€315m
Euronext
#3
#2
€698m
DBAG
#2
#1
€760m
London
Sources: company annual reports
Deutsche
Börse
Euronext
Key
Member of European
Union (EU)
Member of EU but not in
European single currency
Exchange
*
Market position in Europe, by
volumes traded
+
2000 revenues
Lisbon
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Why Does Euronext Need LIFFE?
• Adds scale and scope:
– Complementary products
– Presence in London – a key world financial center
• Technology
– Access to LIFFE’s CONNECT trading system
• Credibility
– A successful LIFFE acquisition would position
Euronext to make further mergers/acquisitions
elsewhere in Europe.
– Losing will put it a distant third to DBAG and LSE.
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How the Rivals Line Up
• Cash from IPO
• Can switch to LIFFE
CONNECT trading
system
• Same language, location
and currency as LIFFE
• Cash from IPO
• Same regulator
• Can offer LIFFE traders
access to Euro products
• Complementary
products (LIFFE offers
options on LSE stocks)
• Can offer LIFFE traders
access to Euro derivatives
• Could give LIFFE selfgovernance from London
• Cultural/political issues
• Different regulators
• Still facing integration
issues from 2000
merger
• Still new on the scene
• Did not raise spare cash
from IPO – will need to
make cash & shares offer
• Faces tough choice: keep
own trading system or
switch to LIFFE CONNECT
• Likely to need full
integration to achieve
synergies
• Probably strongest
exchange overall in
Europe
• EU anti-trust issues
(#1 already in
European derivatives
market)
• Recent failed merger
with LSE
• Cultural/political issues
• Different regulators 10
Who Will Decide?
LIFFE
MANAGEMENT
WHO?
• CEO
Freedberg,
Chairman
Williamson
HOW?
• Advises board
on strengths of
business cases
submitted by
bidders
LIFFE BOARD
LIFFE Board
• Major of its
(consisting
shareholders,
major
most of whom
shareholders,
areofalso
LIFFE
most
whom
arecustomers
also
customers)
choose which
• Votes
on which
bid
to accept
bid to accept
LIFFE’S
REGULATORS
• UK Financial
Services
Authority &
the European
Competition
Commission
• Must approve
the merger
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How can Euronext Win?
Euronext’s Strategy For Battle
• Focus on customers
– LIFFE shareholders are also its customers: their long term
livelihood is at stake. Euronext stressed its commitment to lowering
trading costs, increasing liquidity and keeping existing technology.
• Build trust
– Consistent words and deeds: consistency between business case
and Euronext’s corporate strategy: consistent in all
communications with LIFFE.
– Exemplary behavior during auction: no leaking bids or negotiating
through press.
• Be open, but keep low profile
– Hard to win hearts of public, and probably not necessary.
– Many in UK still very “Euro-sceptic”: sensitivity required when
talking about long term goals for European integration.
• Be mindful of long term objectives
– UK government may be unlikely to intervene, but aggressive or
insensitive approach might harm political chances for later
acquisitions elsewhere in Europe.
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Tactics: a Two Phase Campaign
• Phase one (during auction):
– Sell acquisition business case to LIFFE management &
shareholders (focusing on customer benefits)
– Limited media interviews; no public discussion of bid
– Use English native speakers to help draft board presentation,
key messages and press releases
• Phase two (if bid is successful):
– With assistance of LIFFE management, inform and educate UK
politicians and regulators; European Competition Commission
– Educate LIFFE and Euronext employees on acquisition
rationale, benefits for customers
– Sell acquisition business case to Euronext shareholders (focus
on long term value and customer benefits)
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How the Auction Played Out
2000
2001
Apr
Formation of
Euronext
announced: LSE
refuses to join
late Aug
Sep
DBAG
merger with
LSE fails
Nov
Feb
OM bid
for LSE
fails
DBAG IPO
Sep 27 Sep 29
LIFFE LIFFE says it
rumors has received a
begin
“number of
approaches”
LSE says
it plans to
bid
between
£12-£15
Sources: Company press releases; The Independent, 10/30/2001.
July
Oct 25
Final bidder
presentations
to LIFFE
board: LSE
reportedly
bids £18.50 a
share
LSE IPO
Aug 5
Euronext
IPO
Oct 28 Oct 29
LIFFE
reportedly
rejects
last
minute
LSE bid
of £19 a
share
LIFFE and
Euronext
announce an
agreed deal at
£18.25 a share
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Battle Lessons
• Strategy is only as good as its articulation
• Customers are the ultimate decision-makers
• In every battle, never forget the objectives of the
war (i.e., manage for tomorrow)
• Consistency of word and deed is essential in
building trust and reputation
• You can never understand too much about the
environment in which you operate
• Cash is not always king...
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