Bloomberg's Big Challenger Can't Afford to Slip -- Heard on the Street
By Rochelle Toplensky
A new financial data giant will be born in the coming weeks, and
investors are cooing. Living up to their hopes could be hard
This week, London Stock Exchange Group got the green light from
European Union antitrust officials to proceed with its takeover of
Refinitiv, a full 18 months after the $15 billion all-share tie-up
was announced. This was the last major hurdle for a deal that will
bring together financial-market plumbing and data services. The
transaction is now expected to complete within weeks.
Financial data is a hot sector. Shares in listed providers
S&P Global and FactSet Research Systems are up by roughly
two-thirds over three years and trade for 26 and 28 times
prospective earnings respectively, according to the latter -- more
than the wider market. Investors have even higher expectations for
LSE: Its stock changes hands for 37 times, having risen almost 150%
in dollar terms over three years.
The underlying reason is strong demand for financial
information. Users want it to identify trading signals, design
portfolios, feed automated trading systems, better assess risk,
track regulatory compliance and improve operations. Market-data
revenues grew roughly 6% in both 2018 and 2019, according to
consulting firm Burton-Taylor. Bloomberg and Refinitiv are the
market leaders, and smaller players have been consolidating.
S&P Global agreed late last year to buy IHS Markit, itself the
product of a 2016 merger.
The fourth-largest exchange company globally by market
capitalization, LSE focuses on trading, post-trade clearing, and
information services including the FTSE Russell index group. That
data business contributed around 40% of revenue and profit last
year, and will be a greater share after LSE sells its Italian
business, a concession made to secure EU merger approval. Privately
held Refinitiv collects, consolidates and sells data, primarily via
its Eikon terminals and linked data-feeds, and has fixed-income and
The basic logic of the LSE-Refinitiv deal is to combine a data
producer with a data supplier. By linking both ends of the value
chain, the companies hope to cross-sell services to each other's
clients and create new products, such as indexes for fixed income
and trendy ESG factors.
They are promising top-line growth of 5% to 7% in the three
years after completion. That looks ambitious: In the third quarter
last year both posted around 2% year-over-year revenue growth.
Returns from the deal will also come from refinancing and paying
down some of Refinitiv's $12.5 billion debt and cutting costs,
which should be more straightforward.
Refinitiv's desktop business will be a challenge. It has been
losing market share as Bloomberg has continued to grow. It has good
data, but needs to be simpler to use, says Michael Werner, an
analyst at UBS. He thinks the combined new group doesn't need to
beat Bloomberg but rather just "narrow the gap," so its can
eventually raise prices. This will likely require investment in its
systems and possibly bolt-on acquisitions.
Bloomberg has an agreement with Dow Jones & Co., the
publisher of The Wall Street Journal, to distribute news, and the
companies' newswires compete.
There are the usual deal risks too. Integrating IT systems and
company cultures can be tough and expensive, though acquisitive LSE
has extensive experience.
Understandably, the companies limited disclosure ahead of what
promised to be an intense merger investigation. With that complete,
investors need more detail on the lofty revenue ambitions that have
helped boost the stock 78% in dollar terms since news of the deal
leaked. A true challenger to Bloomberg is an exciting prospect, but
LSE has a lot to do.
Write to Rochelle Toplensky at firstname.lastname@example.org
(END) Dow Jones Newswires
January 15, 2021 09:53 ET (14:53 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.