BackLSE grabs LCH.Clearnet control for $615 mn
LSE grabs LCH.Clearnet control for $615 mn
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London: The London Stock Exchange has agreed to buy a majority stake in LCH.Clearnet, giving it an entry into the hotly contested clearing market and landing chief executive Xavier Rolet a much-needed trophy.
The offer, which implies a total value for LCH.Clearnet of €813 million ($1.08 billion), comes after months of exclusive talks between the two parties.
“This transaction delivers on our promise of 2009, to expand our post-trade operations," Rolet said on a conference call, referring to administrative businesses such as clearing and settlement that take place after a trade has happened.
Rolet had been in desperate need of an acquisition to help grow the LSE’s revenues, after his attempt to scoop up Canadian peer TMX fell through when shareholders nixed the C$ 3.6 billion ($3.62 billion) acquisition last year.
Markets welcomed the acquisition, and the LSE’s shares rose 6.96% to 960.5 pence by 03:32 pm.
The LSE differs from most of its rivals in not owning the clearing house for its main market, which has become more of a problem as clearing is becoming an ever more attractive area, while trading revenues are faltering.
Middle Men
Clearing houses sit between trading firms, acting as a central counterparty that reimburses companies on losses resulting from the default of a trading partner, like Lehman Brothers in 2008, or MF Global last year.
Regulators’ efforts to make trading safer after the crisis have made this a fast-growing business, and the takeover could help the LSE take advantage of new rules intended to overhaul the $600 trillion over-the-counter (OTC) markets.
The maximum payout for the LSE was €463 million, which it would fund from existing resources and bank facilities. It said it had received undertakings from investors holding 46.9% of LCH.Clearnet shares to accept the offer.
The per-share offer of €20 comprised €19 in cash, and €1 from a special dividend payable by LCH.Clearnet in 5 years, which was subject to deductions, so the ultimate price for LSE to pay could still be slightly lower.
“(LCH.Clearnet) is in the business of managing defaults... in order to protect acquiring shareholders of any potential future claims, the dividend has been structured to that effect," Rolet said on the conference call.
The LSE will hold a maximum of 60% of LCH.Clearnet to allow some of the smaller of its 98 shareholders to sell out, but it would then seek to reduce its stake to 51%.
It had been reported to offer about €21 per share for a 51% stake of LCH, nearly double the rival bid by data vendor Markit of €12 a share.
Analysts had also argued transatlantic stock exchange NYSE Euronext -- which is LCH.Clearnet’s largest shareholder -- could look afresh after its planned merger with Deutsche Boerse collapsed last month.
NYSE could use its powerful position as a 9% shareholder to stall the deal, to muscle in on it, or to take the money from a sale and use it to set up its own rival clearing business, they said.
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