Proposed Pre-Conditional Cash Offer By Deutsche Börse For the London Stock Exchange PLC

(PresseBox) (Frankfurt, ) This summary should be read in conjunction with the full text of the announcement, including its appendices. Appendix IV to the announcement contains definitions of certain terms used in this summary and the following announcement. Download: deutsche-boerse.com

Deutsche Börse announces details of a proposed pre-conditional cash offer of not less than 530 pence for each ordinary share of the London Stock Exchange. The Offer is subject to the sole pre-condition that the Board of the London Stock Exchange resolves to give an unqualified and unconditional recommendation to its shareholders to accept the Offer. Deutsche Börse reserves the right to waive, in whole or in part, the above pre-condition;

The proposed transaction would create the pre-eminent markets company in Europe and would provide the opportunity for the New Group to become the first global exchange organisation. The Executive Board believes the New Group would have leading positions in the cash and derivatives markets, the clearing, settlement and custody businesses and exchange data distribution;

Deutsche Börse is committed to ensuring the continued operation of the London equity market in a manner consistent with past practice while delivering improvements and benefits to all stakeholders;

The London Stock Exchange would continue to be solely regulated by the FSA. Established market models including the AIM market would be supported and maintained. Sterling would remain the trading currency for UK stocks and London would be promoted as the primary destination for the listing and trading of UK and non-European stocks;

Deutsche Börse intends to agree a long term arrangement with CRESTCo to ensure continuity for its well accepted and efficient services for clearing and settlement. In addition, if the transaction takes place, Deutsche Börse would be prepared to offer an immediate one year extension of the existing contract with LCH.Clearnet as the provider of the guarantee function for the London equity market in return for a material price reduction for the benefit of the customers of the London Stock Exchange. If the proposed transaction takes place, Deutsche Börse commits that any operational changes to the London market that have a material impact on the economics of customers' operations in the London cash equity market would be subject to a formal approval process. Any such proposal would be initiated by the management of the London Stock Exchange and would require approval by the Board of the London Stock Exchange;

Deutsche Börse intends to offer customers of the London Stock Exchange immediate cost reductions as follows:

- the cost of current tariff structures for electronic order book trading in the UK would be reduced by 10% overall as of 1 January 2006. Prices would be capped at the new levels for at least five years and would be expected to be further reduced in the future. Moreover, Deutsche Börse would guarantee that these fees will never exceed current levels;

- with respect to clearing, Deutsche Börse would put in place an alternative offer to the London market to provide LCH's clearing guarantee at a price 50% lower than the price currently charged by LCH.Clearnet; and

- in the area of information services, the New Group would offer a 10% price reduction to customers who subscribe to a combined UK and German data package;

Regulation of the London Stock Exchange would be unchanged and new customer-oriented governance procedures would be put in place:

- Deutsche Börse is determined to ensure that customers represent a significant proportion of the Board of the London Stock Exchange as well as having the appropriate number of directors who are genuinely independent of both the exchanges and their customers. In addition, the Executive Board of Deutsche Börse intends that the Board of the London Stock Exchange would be chaired by an independent chairman;

- any operational changes to the London market that have a material impact on the economics of customers' operations in the London cash equity market would be subject to the approval of both the Board of the London Stock Exchange and the New Group's Executive and Supervisory Boards;

- the Supervisory Board of Deutsche Börse currently comprises of fourteen shareholder-elected representatives and seven worker-elected representatives. If the proposed transaction takes place, Deutsche Börse would commit that new candidates would be nominated such that seven of the fourteen shareholders' representatives would have close ties to the City of London; and

- the Executive Board members responsible for the Cash Equities, Derivatives and Clearing businesses would be resident in London. These activities represent approximately 45% of the New Group's pro forma revenues for the financial year 2003;

Deutsche Börse has a track record of successfully combining businesses and delivering on its synergy targets. The Executive Board estimates that a combination with the London Stock Exchange would lead to an additional contribution to profit before tax from revenue and cost synergies of at least €100 million per annum which is expected to be achieved in the third financial year (2008) following completion of the transaction. Of this €100 million, approximately €25 million per annum is estimated to come from revenue synergies and approximately €75 million per annum from reduced costs. Total restructuring costs are expected to be less than €100 million;

The Executive Board of Deutsche Börse estimates that the combination would lead to accretion in its earnings per share (before implementation costs) in the first full financial year after completion of the transaction. In addition, the pro forma return on investment in the first full financial year after completion of the transaction, including full run rate synergies, is expected to be approximately 8%, which exceeds the Group's anticipated cost of capital;

The Executive Board also believes that the strong cash flow generation of the New Group would facilitate the continuation of the progressive dividend policy of Deutsche Börse, maintaining a strong AA credit rating and facilitate the implementation of a share buyback program by the end of 2006;

Listing and trading activities as well as regulation in the Frankfurt market would be entirely unaffected by the proposed transaction and would remain unchanged. Deutsche Börse would continue to be incorporated in Germany with its global headquarters in Frankfurt;

In summary, key stakeholders should expect to benefit from the proposed transaction, as follows:

- shareholders would benefit from significant synergies and the creation of a balanced business with enhanced growth opportunities;

- customers would benefit from immediate price reductions and the introduction of new competitive products for the UK market; and

- issuers and investors are expected to benefit from increased trading activity and liquidity which should ultimately lead to a reduction in the cost of capital for issuers.

This announcement is being made in order to facilitate discussions with the customers, shareholders and other stakeholders of the London Stock Exchange and Deutsche Börse. Following such discussions and prior to making the formal offer, Deutsche Börse reserves the right to amend any or all elements of the Offer and proposals to customers, shareholders and other stakeholders, save that it would not reduce the price. This announcement does not constitute an offer or invitation to purchase any securities or a firm intention to make an offer pursuant to Rule 2.5 of the City Code on Takeover and Mergers. There can be no guarantee that such an offer will be made.

Commenting on the transaction, Werner Seifert, Chief Executive Officer of Deutsche Börse said:
"This combination would create a broad-based, innovative leader in the provision of services to customers of both companies world-wide. Next to obvious cost synergies, it is first and foremost a proposal to realise manifold growth opportunities in Europe and globally. The European capital market will become more efficient, to the benefit of issuers, investors and intermediaries. It is Deutsche Börse's intention to respect and build upon the valuable heritage of the London Stock Exchange and Deutsche Börse to the benefit of the stakeholders of both organisations, in particular customers and shareholders. Our expanded product portfolio, combined expertise, and management team will enable the new group to be a truly global player in our industry."

Note:
This summary should be read in conjunction with the full text of the announcement, including its appendices. Appendix IV to the announcement contains definitions of certain terms used in this summary and the announcement. Download: deutsche-boers.com.

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