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Jacob and nat rothschild deutsche borse takeover

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Rothschilds unite in attack on Seifert
By Grant Ringshaw (Filed: 27/02/2005)

The famous father of one of the leading rebel shareholders in Deutsche Börse is being lined up to become chairman of the German stock exchange operator's supervisory board.

Lord (Jacob) Rothschild, the veteran banker, has been sounded out by his son, Nat, to replace Rolf Breuer as Deutsche Börse's chairman.

Nat Rothschild is the president of Atticus Capital, a US-based hedge fund which has a 5 per cent-plus stake in Deutsche Börse and is leading the campaign – alongside The Children's Investment Fund – to stymie the German company's plans to take over the London Stock Exchange for £1.35bn.

The two hedge funds want to force Deutsche Börse, led by Werner Seifert, its chief executive, to abandon its bid plans, and return €500m (£346m) in excess capital to shareholders. They are planning to call an emergency general meeting to oust the supervisory board and, in turn, dismiss Seifert.

However, the hedge funds' approach to Lord Rothschild – whose investment business, RIT, has a stake in Deutsche Börse of just under 1 per cent – may prove controversial.

A banker who knows the Rothschilds well said this was an endearing "father and son co-operation". However, an executive close to Deutsche Börse said: "From a corporate governance standpoint it is a bit rich for them to propose one of the relatives of a senior Atticus executive."

The hedge funds' attack on Deutsche Börse has concentrated on its allegedly lamentable corporate governance standards. However, Seifert is to defy them.

Despite the opposition of a growing minority of investors in Deutsche Börse, he is planning to make a formal offer for the LSE within the next two or three weeks.

"He is not being deterred by the campaign being conducted against him," said an executive close to Seifert. "He is determined to press on."

The formal offer is likely to be pitched well above the 530p-per-share, £1.35bn indicative offer that Seifert has already announced, in the hope that he can secure a recommendation from the LSE's board.

"We would find it difficult not to back him if he offered 580p or so," said a banker close to the LSE. "However, even at that level a recommendation is not certain, for two reasons. First, we would have to be certain that he can deliver on the offer – and there are reasons to question that in the light of the criticism he is facing from his own shareholders. Second, there is an issue around what our customers would think about being owned by a company that appears to ride roughshod over some of its shareholders."

But if the LSE fails to back Seifert's bid, he is likely to appeal to its shareholders directly, bypassing its board with an unsolicited offer.

A bid at 580p would value the LSE at about £1.5bn.

"Our view is that most of the LSE's shareholders would not want us to walk away," said an executive close to Seifert.

Some analysts have suggested that a bid for the LSE by Deutsche Börse or Euronext – its Paris-based rival which also wants to buy the LSE – would have to be at about 600p a share to succeed.

Opposition to Seifert's takeover plan is thought to come from shareholders holding about 38 per cent of Deutsche Börse's shares between them. So his decision to drive ahead with his plans is likely to lead to renewed questions about the German group's corporate governance standards.

"Corporate governance is broken at this company," said Christopher Hohn, the managing partner of TCI. "The way they are treating shareholders means you have to ask whether this is the type of organisation that you would want running the London Stock Exchange."

Meanwhile, Deutsche Börse is understood to have identified an extra €100m (£68m) of cost savings that could stem from the deal. These come on top of the €100m in savings and increased revenues that it has already outlined.

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