Daily Management Review

‘Bidding War’ May Be At The Corner


03/10/2016


As LSE “target price” gets a boost following its merger with Deutsche Boerse, the CS predict a possible “bidding war”.



The previous Credit Suisse’s London Stock Exchange figures that rested at “2,900p” jumped up to “3,350p” reflecting the accumulating “value of cost synergies” to the shareholders of LSE as expected from the proposed merger between LSE Group and Deutsche Boerse.
 
The stocks of the bank continued to “outperform” as a pointer to the possibilities of “further upside to the target price in the event of a superior counterbid”, whereby the bank stated:
“The proposed merger between LSE and DB1 and a subsequent announcement from ICE that it is considering a counterbid for LSE serve as timely reminders of the strategic logic of exchange consolidation”.
 
According to Credit Suisse, LSE becomes “particularly appealing” for “its majority-owned clearing house”, namely LCH Clearnet, plays a “key role” in deciding the “long-term winner in European futures markets”, whereby the bank added:
“For this reason, the owners of Europe's two largest futures exchanges (DB1/ICE) could battle for control.”
 
The bank also stated that the “market participants” are expecting highly for a “better counterbid” than its “LSE shares trading at a 10% premium to the Deutsche Boerse merger terms”. In fact, CS also thinks that Deutsche Boerse will be able to render the merger deal ‘sweeter’ by bringing in “a cash sweetener”; however doing so will “rule out a nil premium all share merger-of-equals” and assuming “the ratings agencies” will loosen a leverage opportunity of “1.5x”, currently applicable to “DB1 at a group level”.
 
In case of a “bidding war” taking placing, the “market infrastructure providers” of Europe may have to look into the option of strategic “re-appraisal”, whereby “further consolidation” may also materialise. The bank also mentioned:
“Our preferred way to play this is via ICAP which we believe is most significantly undervalued in a takeout scenario. While DB1 could become a target itself, domestic government opposition to a takeover remains a significant hurdle in our view.”





References:
http://www.digitallook.com/
 







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