May 4, 2016 / 4:21 PM / a year ago

ICE shelves plans for London bourse counter bid

5 Min Read

A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008.Toby Melville/File Photo

LONDON/BENGALURU (Reuters) - The New York Stock Exchange's owner has shelved plans to make a counterbid for London Stock Exchange (LSE.L) that could have derailed the British firm's planned merger with Deutsche Boerse.

Intercontinental Exchange Inc's (ICE.N) CEO Jeffrey Sprecher accused the LSE of failing to respond to the U.S. group's approaches despite several attempts to arrange meetings. As a consequence, ICE did not have enough information to make a formal offer, he told reporters on Wednesday.

The LSE disputed this account. It responded with a statement that it had provided ICE with information and access to management. The U.S. exchange had not approached it with a possible proposal, it said.

LSE's shares fell as much 10 percent following ICE's announcement before recovering to close down 4.2 percent, whilst Deutsche Boerse rose 6 percent and ICE jumped 8.2 percent at the New York open.

The LSE announced plans to merge with Deutsche Boerse (DB1Gn.DE) in February, prompting ICE to say a week later that it was considering its own bid.

"Following our public expression in March of interest under the UK takeover code, the LSE chairman and CEO did not engage with ICE," Sprecher said on a conference call.

"We're turning our focus to other opportunities to build on our track record of growth."

Some London Stock Exchange Group investors said they were annoyed at the company's apparent refusal to entertain ICE's approach.

"We are disappointed that a rival and credible bidder has been frustrated due to 'insufficient engagement' on behalf of the LSE board," said Jamie Hooper, a fund manager at AXA Investment Managers.

Sprecher said ICE's advisers spent the last two months trying to see if they could come up with a deal that would meet ICE's return on investment threshold and offer LSEG shareholders a meaningful share price premium, but had had little response from the London exchange.

"You only have one chance to merge or sell yourself, so you really should be doing everything to get the best price for shareholders," said one of LSE's 20 largest investors. "It is now debatable whether doing this deal with DB (Deutsche Boerse) really is."

LSE's largest shareholder, the Qatari Investment Authority, which holds around a 10 percent stake according to Thomson Reuters data, declined to comment.

ICE's announcement puts the brakes on a potential takeover battle in the exchanges sector, making it less likely that Deutsche Boerse will have to sweeten the terms of its all-share merger with LSE in order to win shareholder approval.

"While the door to an offer is not completely closed, it appears highly unlikely without a material change in circumstances," analysts at Jefferies said in a note after ICE's announcement.

Regulatory Concerns

A takeover by ICE would have created the world's biggest exchange group, spanning the Atlantic and trading and clearing stocks, derivatives, energy and commodities.

However there were concerns about whether European regulators would have approved such a deal, and how attractive the combination would be should Britain vote to leave the European Union in a referendum on June 23.

LSE Chief Executive Xavier Rolet made comments in media interviews last month, some of which were critical of ICE, including one where he described ICE's ownership of European stock platform Euronext as "a disaster".

LSE later said views expressed in one interview had been his own.

ICE still has the right to reconsider and make an offer for LSEG within the next six months, provided it has approval from the British Panel on Takeovers and Mergers, or if the LSE-Deutsche Boerse merger falls through or another bidder comes in for the UK bourse.

ICE's made the announcement as it reported a 16.7 percent jump in first-quarter net income, driven by higher data fees.

The U.S. exchange released its results a day before a deadline to submit a plan to British regulators assuring them that its recent takeover of commodities trading software house Trayport will not be anti-competitive.

ICE, which began as an energy exchange in 2000 and has expanded through acquisition of companies including the New York Board of Trade, closed its deal to buy Trayport in December for about $650 million in stock.

The UK competition watchdog had threatened to investigate ICE if it does not meet the May 5 deadline.

Reporting by Noor Zainab Hussain in London and Richa Naidu in Bengaluru; Additional reporting by Sinead Cruise and Freya Berry in London, Andreas Kroner in Frankfurt and Tom Finn in Doha; Editing by Sinead Cruise, Rachel Armstrong, David Stamp

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