London 'back on front foot'
The London Stock Exchange, often seen to follow rather than lead, took rivals by surprise in May with the announcement of plans for its own listing, alongside the first signs of a real ‘European strategy’.
Commenting on the announcement of the intention to list, Don Cruickshank, chairman of the exchange, said: “The restructured board and strengthened management team at the exchange are well positioned to carry forward the development of our business as a commercial organisation. We have reached the point now where we are ready to move to a full listing, offering us the flexibility to pursue the strategy developed by chief executive Clara Furse and her team.”
Some critics have accused Furse’s vision of being more marketing than substance, but those attacks may now have been answered. The listing, expected to take place on the main London market at the end of July, is designed to reposition the exchange as it bids for the dominant position in cross-border trading.
The announcement came on the back of the publication of the impressive annual results. Operating profits were up 39% to £57.9m (€96m) , although pre-tax profits were down more than a third to £30.4m. The latter figure was affected by the substantial costs, almost £19m, swallowed up by the collapse of the iX deal and subsequent defence of the unwelcome bid from Swedish group OM.
Nevertheless Furse was able to say: “This year’s strong results put us in a great position to scale up the business in the future. Delivering on the corporate strategy I have laid out today should ensure that the business and shareholder value continue to grow. During the year, we have worked with our customers to develop and deliver a wide range of initiatives. Over the coming year this will gather pace. As a business we must seek to position ourselves as Europe’s leading capital market exchange organisation and exchange service provider rather than purely as a stock exchange.”
She also hinted at the possibility of mergers and acquisitions in the months ahead. “I am determined that the Exchange should seize opportunities presented by its position in that market. If that means actively pursuing corporate deals, that is what we will do.”
Both Furse and Cruickshank believe that the company has plenty of reserves to finance any such moves, pointing to £150m in the balance sheet, credit lines of up to £250m, and will now have its shares to offer as acquisition currency. In mid-June the shares were steady at around £36.50 up from £25 on the day of Furse’s appointment at the beginning of the year, valuing the company at £1.08bn.
Schroder Salomon Smith Barney is advising on the listing and Philip Robert-Tissot says:“Last year we did not hide behind the limit to thwart the OM bid, and the removal of the limit is in accordance with the market practices which we are embracing by becoming a listed company.” He further believes that the exchange has changed over the past year and is now very much on “the front foot”. “There is no fund-raising on the back of this, but obviously we have the ability to raise cash from shareholders if our exisiting cash and credit proves insufficient consideration in any acquisition.”
The completion of the demutualisation process follows similar exercises by Deutsche Börse, which has already floated on the Frankfurt exchange, and Euronext, the Paris-Brussels-Amsterdam alliance. Brian Maris, head of information at the private client brokers association Apcims, commenting on the announcement, said: “What our member firms are going to want from the exchange, prior to any decision being made is a clear idea of what the strategy for the future is. That does not mean simply what it intends to do, but how it is going to do it. Just like everyone else, we are looking forward to seeing the prospectus!”
The impression that London is set to make a major play for other services was reinforced in the past few months by comments by Furse and Cruickshank. The new battleground between the European exchanges is likely to be in clearing and settlement, and the chief executive referred to this during the listing announcement. “As a business we must seek to position ourselves as Europe’s leading capital market exchange organisation, and exchange services provider rather than purely as a stock exchange,” she said.
Later Cruickshank reinforced that view in a speech in the City in which he set out a vision for a single European clearing and settlement infrastructure which would remove current barriers to a low cost capital market in Europe.