London exchange to buy most of LCH.Clearnet

LONDON STOCK Exchange Group rallied the most in more than eight months after agreeing to buy a majority stake in LCH.Clearnet Group for €463 million to expand its post-trade services.

Shares in the owner of Europe’s oldest independent bourse climbed 8.9 per cent to 977.50 pence at lunchtime in London trading, valuing the exchange at £2.65 billion. It later retreated slightly but was still more than 6 per cent ahead on the day.

LCH.Clearnet shareholders will receive €19 a share in cash plus €1 a share from a special dividend for a stake of as much as 60 per cent, LSE said yesterday. The offer values the world’s biggest swaps clearinghouse at €813 million. LCH shareholders, which include banks and brokers that use its services, will retain ownership of at least 40 per cent of the company.

“LSE’s proposal for a majority acquisition maintains a shareholding position for current users, which gives them a stake and a say, and should also ease any potential antitrust concerns,” said Stefan Goetz, head of the financial institutions group at Société Générale’s investment bank, one of LSE’s advisers on the deal. That arrangement could also support the combined business.

“All of the major banks will remain shareholders post deal, which is likely to make them inclined to continue to provide LCH with business,” James Hamilton, an analyst at Numis Securities in London, said.

Clearinghouses operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

The businesses have become more attractive as regulators globally seek more central clearing of derivatives. LSE had been in talks with the London-based clearinghouse for more than six months. LCH had also attracted interest from Nasdaq OMX and NYSE Euronext, which planned to bid in partnership with Markit Group.

The deal promises to be transformational for LSE as well as the market-infrastructure industry, Mr Goetz said. “LSE is diversifying further into post-trade services, the fastest-growing part of the value chain, and the scale advantages from the transaction will also provide cost synergies.” – (Bloomberg)