A Divorce Invoked and a Marriage Cancelled

Spring may be in the air but love is definitely not. As expected, Mrs May has issued a letter to the EU invoking Article 50. So the Brexit process is now commenced and we may be out in a couple of years. The UK stock market has of course discounted this already although there is some uncertainty about what the future impact will be. It depends a lot on the trade deal that can be negotiated.

The other big item of news today is that the proposed merger of the London Stock Exchange (LSE) with Deutsche Börse is off. The European Commission has prohibited the merger on competition grounds, adding that the proposed solution to their concerns was not viable.

This is possibly disappointing in one way in that I hoped some Germanic discipline might have improved the operation and regulation of the AIM market, but it clearly is not to be. The good news for investors in the LSE is that it will remain a stand-alone business and the company is to return capital to shareholders via on-market buy-backs instead of the promised special dividend which was part of the merger deal. But why can’t it be paid as a dividend instead of market share buy-backs?

Are the shares really intrinsically undervalued at present? Perhaps the directors should read Warren Buffett’s and Terry Smith’s recent comments on that topic.

Roger Lawson


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