The London Stock Exchange said it will more than double the cash it plans to return to shareholders to #510 million as it defends itself from a bid by Australia's Macquarie Bank.
The London exchange, the subject of a long-running takeover saga, asked shareholders once again to reject the #1.5 billion offer from Macquarie Bank, saying it failed to take into account its franchise and strong trading performance.
"The London Stock Exchange has a unique strategic position and an exceptional customer franchise," chairman Chris Gibson-Smith said yesterday.
"Macquarie's offer recognises none of this. It provides no value today and reflects no value tomorrow."
Macquarie now has until February 26 to raise its 580p a share offer. Sources familiar with the matter said on Thursday it had not ruled out an increased offer, adding it would boost its bid by about #1 pound a share, though this would be still well below the LSE's current share price.
A Macquarie spokesman declined to comment on a possible higher bid, but said the LSE's plans to return more cash changed nothing.
"There is nothing in the LSE document to cause MLX [Macquarie's bid vehicle] to change its view that the LSE is a fundamentally low growth business which has suffered from poor cost control and which remains strategically isolated," he said.
By mid-day yesterday LSE shares were 5.7 per cent up at 805p having earlier risen to an all-time-high at 813p - valuing the exchange at more than #2 billion.
The LSE said it would also buy back up to #50 million of its shares each year after returning the cash to shareholders.
It will also raise the total full-year dividend by 71 per cent to 12p, the LSE said in a statement.
The increases are part of the LSE's drive to make its balance sheet more efficient, finance director Jonathan Howell said.
"We are now at the leading edge of good capital management in the sector," he added.
Returning cash to shareholders is a trend in the exchange industry. Major rivals Euronext and Deutsche Boerse, both of which have approached the LSE with merger plans, have already paid back cash to shareholders following demands from activist hedge funds, such as US firm Atticus.
Earlier this month pan-European exchange Euronext said it was looking at ways of returning even more cash to shareholders as merger talks with the Frankfurt-based exchange had stalled.
Euronext declined to comment on the LSE's defence document.
But Johannes Thormann, an analyst at WestLB, said he is concerned that the LSE is gearing up again, saying the company's forecasts for growth in its electronic order book, SETS, were too optimistic.
The LSE said it expects the average number of trades per day expected to grow by at least 100 percent by the 2008 financial year.
The strong performance will continue to be driven by the rise of hedge funds, the popularity of contracts for difference (CFDs) and the increasing shift to algorithmic trading, a sophisticated electronic method of trading shares by breaking large orders into smaller chunks according to pre-set parameters, the exchange said.
"This all fuels growth on SETS," Clara Furse, LSE chief executive said.
"If the LSE is able to raise #560 million from their business by 2008, will customers and users accept this without demanding price cuts?" Mr Thormann asked in a note to investors.
"We certainly think that this is not the case and expect more demands from the investment banks for price cuts in the near future."
The LSE said the current share price did not fully reflect its stand-alone value, adding that its price-to-earnings multiple stood at a discount to rivals.
"It's clear we are trading cheap relative to the other exchanges," Furse said. "It doesn't tie in with our actual performance."