London Stock Exchange Sells Italian Exchange for $5.1 Billion--Update
October 09 2020 - 7:05AM
Dow Jones News
By Anna Isaac and Ben Dummett
LONDON -- London Stock Exchange Group PLC agreed Friday to sell
Borsa Italiana Group to a group led by pan-European rival Euronext
NV, a divestment meant to smooth approval of its separate, much
larger, acquisition of financial-data company Refinitiv Holdings
Ltd.
The deal, priced at around EUR4.33 billion, equivalent to $5.1
billion, is aimed at alleviating antitrust concerns about the
potential bond trading dominance of the proposed $15 billion tie-up
between LSE and Refinitiv. Borsa Italiana's MTS SpA is the leading
bond exchange in Italy, one of Europe's largest debt markets.
Refinitiv owns bond-trading platform Tradeweb.
"This removes a major hurdle towards the deal, and may also
generate some political goodwill," said Chris Turner, equity
analyst at Berenberg Bank, ahead of Friday's announcement.
Euronext leads a consortium of buyers that includes an
investment arm of the Italian government and Italian bank Intesa
Sanpaolo SpA. The deal price includes an additional unspecified
payment based on cash generated by the Italian exchange through the
deal's completion, the companies said. The Italian government had
previously signaled that it would favor a deal in which Italy would
retain some ownership of the exchange.
Shares in Euronext dropped 3.8% following agreement of the deal.
LSE's stock rose 0.8%.
The LSE's deal to acquire Refinitiv is under review by the
European Commission, the European Union's antitrust regulator.
Euronext and LSE said the deal for Borsa Italiana is conditional on
the European Commission requiring the LSE to sell the Italian
exchange, or a large part of it, to win commission approval for the
LSE-Refinitiv transaction. A decision on whether to approve the
larger deal is due by Dec. 16.
The LSE is betting that the deal to acquire Refinitiv will help
it to create a financial data juggernaut. The largest exchange
company in Europe by market value, it has tried to diversify its
business away from its bread-and-butter stock and bond trading,
toward higher margin data services.
The potential scale of LSE and Refinitiv's data operations forms
part of the concerns flagged by the European Commission's antitrust
probe. Brexit is also a factor, with U.K.-based LSE now outside the
EU. This raises issues of data movement across a new information
border between the U.K. and the bloc post-Brexit. Data sharing is
subject of ongoing negotiations between the U.K. and EU over a
post-Brexit trade deal.
Bond trading venues have become a sensitive topic for the EU as
the European Central Bank prepares to sell hundreds of billions of
euros of common debt for the first time in response to the
coronavirus pandemic. Europe's financial scene has long been
dominated by American and U.K. players, with London as the
undisputed financial center of the region. With the U.K. out of the
EU post Brexit, EU politicians and executives have pushed to boost
indigenous rivals.
European politicians and officials in Brussels favored
Euronext's bid over a rival offering from Deutsche Börse and
Switzerland-based SIX Group. Part of the rationale was that it
would allow EU leaders to realize their goal of creating a more
unified capital market to cut the bloc's dependency on bank loans
for corporate financing, according to analysts and people familiar
with the matter. Switzerland isn't an EU member.
The pandemic had injected urgency into the capital markets union
project "because the strength of economic recovery will depend on
well-functioning capital markets and access to market financing,"
said Valdis Dombrovskis, European Commissioner for the Economy and
Trade, on Sept. 12.
U.S. exchange operators such as Nasdaq Inc. and Intercontinental
Exchange Inc. have been reluctant to bid on European market
infrastructure as they realize they are less likely to succeed due
to political pressures, analysts said.
Euronext operates markets in Belgium, France, Ireland, the
Netherlands, Norway and Portugal. The Italian exchange will now
likely be its biggest source of revenue. In 2019, Euronext
generated 679.1 million euros, equivalent to $804.7 million, in
revenue. LSE doesn't break out revenue for the Italian
exchange.
Euronext's deal for Borsa Italiana is the latest in a string of
purchases aimed at spreading its footprint across Europe and
building scale to cut costs. It helps to diversify Euronext's
business by adding bond trading, and strengthening its pan-European
cash equity business, said analysts at Deutsche Bank in a note,
ahead of the deal's completion.
While there are savings to be made by stripping out costs in the
short and medium term, there are also other challenges to Euronext
as a result of the deal. Stock trading is competitive and
generating less cash than it used to. Some see it as an area
effectively in managed decline.
Another factor is that Euronext, which is small by industry
standards, has been able to grow by snapping up relatively small
exchanges in places such as Norway and Ireland.
"Where do they go after [Borsa] Italiana? When they are much
bigger, anything else they buy will bring them into closer contact
with bigger, deeper pockets like ICE, Deutsche Börse, and LSE," Mr.
Turner the Berenberg analyst said.
Write to Anna Isaac at anna.isaac@wsj.com and Ben Dummett at
ben.dummett@wsj.com
(END) Dow Jones Newswires
October 09, 2020 06:50 ET (10:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
London Stock Exchange (LSE:LSEG)
Historical Stock Chart
From Apr 2024 to May 2024
London Stock Exchange (LSE:LSEG)
Historical Stock Chart
From May 2023 to May 2024