The London Stock Exchange is buying a majority 60% stake in the clearing house LCH.Clearnet after finally completing a deal following the commencement of exclusive talks in September last year. The LSE is offering EUR19 for each LCH.Clearnet share valuing the firm at EUR813 million (£677m) and the exchange says shareholders can keep the recently announced special dividend of EUR1 too.
LCH.Clearnet and the LSE say the takeover deal, which is expected to complete late this year subject to regulatory approval, will be earnings accretive with revenue synergies of EUR20 million expected for the first three years and cost savings of EUR23 million identified, rising in later years as the efficiency of the combined entity improves. Of course, there will be some upfront integration and technology implementation costs, estimated at EUR14 million initially.
The acquisition is widely considered to be crucial to the LSE's future competitiveness. Having failed in bids for the Toronto Stock Exchange and other rivals previously, this purchase should give the LSE a new source of revenue and an enhanced platform in the over-the counter (OTC) derivatives trading and clearing arena, which is changing rapidly under regulatory pressure to do such deals on exchange in the future. The fact that the price LSE is paying is almost 40 times the 2011 earnings of LCH.Clearnet illustrates the strategic nature of the deal.
According to LSE chief executive, Xavier Rolet the deal, “will be transformative, delivering a strong customer-focused clearing partnership between LSE, LCH. Clearnet and our customers, the broker-dealer community. The combination with LCH will also boost competition in the listed derivatives market.”
By Neil Ainger