OMX’s acquisition of Copenhagen Stock Exchange

Letter of Intent signed regarding a combination of Copenhagen Stock Exchange and OMX


NOV 15, 2004 12:00AM EST

Letter of Intent signed regarding a combination of Copenhagen Stock Exchange and OMX OMX AB (publ) (OMX) and Copenhagen Stock Exchange A/S (CSE) (together the Parties) have today signed a Letter of Intent regarding a combination of OMX and CSE, thereby taking the next step in realizing the vision of an integrated Nordic and Baltic securities market and further establishing OMX as one of the leading European exchange organizations. The intention is that the Letter of Intent shall result in a formal Combination Agreement to be announced in December. An offer will subsequently be submitted to the shareholders of CSE. The combination will provide benefits for the customers issuers, members and investors through increased liquidity, efficient member access and a broader range of services. The combination is also expected to provide benefits for the shareholders through cost synergies as well as an expected higher activity on the cash and derivatives markets over time, resulting in increasing revenues for the combined entity.

The combination of OMX and CSE is intended to be effected through an offer by OMX to CSEs shareholders to acquire all outstanding shares of CSE. Currently, it is the Parties view that the total value of CSE is DKK 1,220 million, including net cash of DKK 258 million as of September 30, 2004. Under the proposed terms, CSEs shareholders will be entitled to choose between a cash consideration and newly issued shares in OMX, or a combination thereof. The combination is supported by several of the largest shareholders of CSE, including Danske Bank, Nordea, Sydbank, Amagerbanken, Alfred Berg, Nykredit, RealDanmark, BRFkredit and TDC, which together represent more than 50 percent of the outstanding shares of CSE. OMX and CSE welcome the other Nordic exchanges – Oslo Børs and Iceland Stock Exchange – to join the combined entity. A web-casted press conference will be arranged at 10.30 today in Copenhagen. For more details, see page 6.

The Danish securities market has seen a remarkable development over the last few years, mainly due to our partnership in the NOREX Alliance and its use of a common trading system SAXESS. Now it is time to make sure that this development will continue in the future to the benefit of the Danish marketplace and its stakeholders. We believe that a combination with OMX is the best way to make that happen, says Hans-Ole Jochumsen, President and CEO of CSE. I am happy that we have agreed on this Letter of Intent, thereby building on our strategy of establishing a truly integrated Nordic and Baltic securities market. This will benefit our customers domestic as well as international and increase the attractiveness of the Nordic and Baltic region, says Magnus Böcker, President and CEO of OMX.

Benefits from the Combination

The combination of OMX and CSE will create value and benefits to shareholders, issuers and market participants. Due to the larger size of the combined entity, shareholders will benefit from synergies coming from economies of scale as well as from increased revenues. Moreover, the employees may benefit from the wider development possibilities offered by a larger company. The combination will ensure faster and deeper integration of the Nordic and Baltic securities markets. Moreover, the combination will create opportunities to develop the fixed income markets and the investment fund markets based on the experience and the strength of the structure in the Danish market. The combination also offers the opportunity to develop the Danish derivatives market by integrating it with the well-functioning and efficient Swedish/Finnish derivatives market. Furthermore, liquidity in the equity markets will increase due to cheaper infrastructure as a consequence of synergies and streamlining potential for Nordic and Baltic based members. An important measure to increase the liquidity is to attract more members to the exchanges in Stockholm, Helsinki, Copenhagen and the Baltic countries. Issuers will benefit from increased liquidity of a combined market place through a higher number of members and international investors. The market place will in short to medium term see increased trading following an enlarged home market due to the possibilities of creating attractive segments, indices and market structures for listed companies. Through operational efficiencies, the combination is expected to create annual pre-tax cost savings of around DKK 25 million to have full effect within three years, but with the major part having effect within two years, following completion of the transaction. Restructuring costs are estimated at around DKK 50 million pre-tax.

Company Structure

OMX will, following completion of the proposed transaction, remain the parent company of the group and fully own the two divisions, OMX Technology and OMX Exchanges. It is intended that the operations of CSE will be combined with the operations of OMX Exchanges. OMXs shares are already listed on the stock exchanges in Stockholm and Helsinki and OMX will also seek a listing on the Copenhagen Stock Exchange as soon as possible during 2005. CSE will continue to operate in Denmark as an exchange regulated by Danish law and supervised by Danish authorities. This corresponds to OMXs preferred exchange business model, which is to operate in a cross-border entity through local entities in order to ensure the closeness to local customers.

Management and Governance

The composition of the Board of Directors of OMX shall reflect a representation of the combined companies and their stakeholders. It has been agreed that at least one of the Directors shall be nominated by the Danish stakeholders. The Board of Directors of OMX appoints the Board of Directors of OMX Exchanges. The Board of Directors shall consist of OMX executive Directors and non-executives who represent key stakeholders. The Board of Directors shall have three non-executive Directors representing the Danish market. Jukka Ruuska will continue as head of the division OMX Exchanges. It is proposed that Hans-Ole Jochumsen, President and CEO of CSE, shall become deputy head of OMX Exchanges. It has also been agreed that Hans-Ole Jochumsen, following completion of the offer, shall become a member of the OMX Executive Team. An Advisory Committee with representatives for Danish issuers and intermediaries will be established for the purpose of discussing issues of wider interest for the Danish securities market, such as supervisory issues and disclosure rules. The Advisory Committee must be consulted in advance of any material changes to regulatory issues for which CSE is responsible. Furthermore, material changes to the disclosure requirements for issuers of securities listed on the CSE can not be introduced if a majority of the members of the Advisory Committee is opposed to the proposed changes.

Integration Plan

The intention is that the integration of OMX and CSE shall be implemented in two steps. The first step includes integrating CSE into the corporate and organizational structure of the division OMX Exchanges and is anticipated to take place during 2005. The second step involves the formation of an integrated securities trading market between Sweden, Finland, Denmark and the Baltic countries, including, among other things, the establishment of cross membership and one communication line access point for the members at OMX Exchanges and CSE. The second step will evolve over 2005-2006.

Main Terms of and Conditions to the Offer

The combination of OMX and CSE is intended to be effected through an offer by OMX to CSEs shareholders to acquire all outstanding shares in CSE. Currently it is the Parties view that the total value of CSE is DKK 1,220 million, including net cash of DKK 258 million as of September 30, 2004, i.e. a value excluding net cash of DKK 962 million. As of September 30, 2004, distributable earnings in CSE was DKK 211 million. Under the proposed terms, CSEs shareholders will be entitled to choose between a cash consideration and newly issued shares in OMX, or a combination thereof, subject to a maximum new issue of OMX shares at a value of DKK 500 million in case of full acceptance of the offer, or, in case of a lower acceptance level in the offer, a corresponding lower value of newly issued OMX shares. OMX currently has a 2 percent ownership in CSE. The details of the offer will be announced following signing of the Combination Agreement and in the Prospectus. The proposed transaction is subject to, among other things, due diligence, signing of the Combination Agreement, relevant regulatory approvals, OMX Extraordinary General Meeting approval and a minimum acceptance level of 90 percent. OMX has the right to complete the offer at a lower acceptance level than 90 percent, but if the acceptance level is lower than 66.7 percent, completion of the offer requires the written consent of CSEs Board of Directors.

Background and Motives

Individually, the Nordic securities markets are medium-sized and exposed to global competition. So far, the Nordic markets have been successful in compensating the lack of size with innovations, cost efficiencies and competitive fees. But as the larger markets and market participants consolidate, the critical mass needed increases and the relative size of the Nordic markets diminishes. The Nordic securities markets share several important values, structures and participants and are often considered as one common area by the global financial community, which therefore also expects a high level of integration between the Nordic and Baltic markets to form an efficient securities market. Efficient and competitive capital markets are important for securing access to capital and, in the long run, for a regions attractiveness and growth opportunities. The internationalisation and consolidation of securities markets means that even medium-sized markets have to maintain and develop the same functionality, products and services as the larger markets. New standards have to be imported from the larger markets. An example of this is the central counterparty clearing (CCP) for the equity market, which is becoming a de facto standard in Europe and has to be introduced also in the Nordic markets. Based on a common view of the future securities market development, the Parties main motive for the combination is to increase the combined entitys competitiveness as well as the regions attractiveness. The proposed combination between OMX and CSE will improve the competitive position of the Nordic and Baltic exchanges and places the combined entity in a position to influence further consolidation in the European exchange landscape. Furthermore, the Parties acknowledge that the Nordic consolidation of the Central Securities Depository (CSD) markets is essential for the successful creation of a common Nordic securities market and the Parties shall therefore actively promote and support such consolidation. The Parties have the joint understanding that the proposed combination will give further impetus to the establishment of a Nordic CSD and CCP. The overall objective is to develop a common Nordic and Baltic securities market with integrated exchanges, as well as one clearinghouse and a functionally integrated CSD with local legal entities. This structure would allow investors, as well as trading and clearing members to access the market with minimum effort.

Advisors Lenner & Partners is financial advisor and Mannheimer Swartling and Gorrissen Federspiel Kierkegaard are legal advisors to OMX. JPMorgan is financial advisor and Kromann Reumert and Vinge are legal advisors to CSE.


Link to press release:

OMX (English)