Deutsche Boerse appeared on Saturday to be facing a backlash from its shareholders who fear the German exchange will overpay for the London Stock Exchange. The Children's Investment Fund Management (TCI), a UK investor in Deutsche Bourse, which is opposed to Frankfurt's 1.3 billion pound bid, said the law will back its demand for a shareholder vote on the offer.
Deutsche Bourse is already facing growing concern from UK market users about its take-over plan, fearing they will be locked into Frankfurt's clearing and settlement systems.
But opposition from shareholders poses a more serious problem and may dent the momentum for the speedy take-over of the LSE sought by Werner Seifert, chief executive of Deutsche Bourse.
TCI says it represents two funds that own more than 5 percent of Deutsche Boerse's shares, above the threshold in German law whereby a company must agree to a shareholder request for an extraordinary general meeting.
"If you have 5 percent they are obligated to give you an EGM," TCI's Chief Investment Officer Chris Hohn told Reuters in an interview on Saturday.
TCI's comments came as another major shareholder in Deutsche Bourse told Reuters on Saturday that several large investors worry the German exchange would pay too much for the LSE.
"TCI are saying that there are a large number of investors that support their feelings. I think that is a genuine claim," a source at the big shareholder said.
Others, however, were more positive about the Boerse's bid. A spokesman for Union Investment, another big investor, said: "We are in favour of an economically sensible solution with an offer price that is not too high. If that is not possible, we would like to see the money distributed to the shareholders."
SHAREHOLDER CALL: Hohn said the aim was for an EGM to vote on the LSE offer, otherwise TCI would press to remove the supervisory board.
"We believe the vast majority of large shareholders will oppose the deal if they are given the opportunity. We would hope for other large shareholders to demand an EGM publicly as part of their fiduciary duty," he added.
LSE shares closed on Friday at 589.5 pence, valuing the company at 1.5 billion pounds.
The Frankfurt exchange said on Saturday its executive board would discuss TCI's request with its supervisory board. It added that although TCI wanted to see new supervisory board members, TCI had not nominated candidates.
Late on Friday, Reuters reported that TCI opposed Deutsche Boerse's 530-pence per share or 1.3 billion pound ($2.43 billion) offer to buy the LSE to create a dominant exchange in Europe and the world's second biggest after New York.
TCI called instead for a share buyback scheme, something Deutsche Bourse dismissed.
"The board of Deutsche Bourse is of the opinion that there are better investment opportunities on offer that would give higher returns to shareholders in the long term than a share buy-back programme," a Deutsche Bourse spokesman said on Saturday.
TAKEOVER DELAY? Hohn said Deutsche Bourse could fight the EGM demand but TCI would then ask the courts to enforce the legal requirement to hold one. TCI would also use the next annual shareholders' meeting, due sometime in May, to put forward its demands.
TCI is also a shareholder in Euronext, the pan-European stock exchange which is also holding talks with LSE about its rival plan to buy the London market.
Hohn was against Euronext making a bid for the LSE at current share price levels, though neither Euronext nor Deutsche Bourse have made formal bids yet.
Euronext said it would not comment, but a source familiar with the exchange said Euronext's case will always be made on shareholder value and an ability to demonstrate synergies.
Euronext is incorporated under Dutch law, which says a company must obtain shareholder approval before making a bid.
On Monday, Deutsche Boerse's supervisory board will meet to discuss the Frankfurt exchange's offer for its London rival.
German newspaper Boersen Zeitung reported on Saturday that the supervisory board would also request a guarantee that the Bourse would stay in Frankfurt.