Signaling Strategic Commitment for Organizational Transition: How to Manage Potential M&a through Voluntary Disclosures

On December 13 2004, Deutsche Boerse AG (DB), which owned the German stock exchange in Frankfurt, announced a 530p per share bid for the London Stock Exchange (LSE) – both exchanges are amongst the largest in the world. This valued the LSE at £1.3bn and represented a 23% premium on the LSE share price two days earlier. DB shareholders were concerned about the announcement, believing the deal would be value destroying. The lack of timely and effective communication after the announcement, and the seeming indifference of DB management, led to dissatisfaction regarding the deal and growing concern about the governance of the company. It was not until March 2005 that the Chairman finally attempted to communicate with shareholders to allay their concerns about the proposed takeover, but the effort was too little too late. The offer for the LSE was withdrawn on 7 March and the CEO of DB was forced to resign, along with the Chairman of the Board and other board members. This example illustrates the importance of communicating strategic commitment to the markets after the announcement of a proposed transaction – the hoped for strategic transition to create Europe’s largest stock exchange failed.