Management

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

The announcement of Xavier Rolet's planned retirement from the London Stock Exchange Group Plc in 2018 didn't look suspect when it was made last month. Now it's threatening to engulf the company in crisis.

TCI, a 5 percent shareholder, says Rolet is being eased out against his will and wants him to stay on. It cites his impressive record of value creation. Last week it threatened to call a shareholder meeting to oust the chairman, Donald Brydon. It piled on the pressure on Tuesday, claiming that Brydon used a confidentiality agreement as justification for not explaining the background to October's news. The LSE isn't commenting.

If TCI's account is correct, it raises difficult questions for the exchange, and for Brydon, a seasoned and well-regarded chairman. The mere existence of an arrangement that prevents discussion of a seemingly matter-of-fact succession opens up many possibilities. At the very least, it reinforces the impression that Rolet's planned exit was the result of an awkward compromise between him and the board.

The LSE's strategy and independence is directly intertwined with the row. If the ruckus turns into a full-blown crisis, both Brydon and Rolet may end up having to leave. The company would then be an easier takeover target for a U.S. peer such as Intercontinental Exchange Inc and CME Group Inc -- even if regulators appear averse to sector deals. 

Tempting Target
The LSE is still relatively small by U.S. standards
Source: Bloomberg

Rolet is himself a dealmaker who believes in consolidation -- hence his pursuit of an ultimately failed merger with Deutsche Boerse AG. Perhaps he would eye another big deal, given the time and freedom, whereas a new CEO may see things differently and want to champion a standalone story.

Brydon's own succession is an issue too. Bringing in a new CEO could be viewed as a way of extending his own tenure on the pretext of settling in the new leader.

The longer the situation festers without explanation, the worse it will get. The LSE may be having private conversations with shareholders to explain itself as best it can. But it is a regulated entity with a critical role in the capital markets. It needs to communicate publicly.

The quickest way to bring stability would be a statement, jointly from Rolet and the rest of the board, addressing TCI's concerns and clarifying that Rolet is happy to lead the LSE through 2018 while also content to stop there. If the company can't do that, it's hard to see how the current set-up at the top can survive.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net