The LSE has offered to acquire 100% of MillenniumIT's shares for cash with a share alternative. It estimates that 73% of the deal will be in cash with the rest made up of about 600,000 new shares.

The group has already received irrevocable undertakings representing over 90% of the vendor's shares. The deal is expected to close by mid October.

MillenniumIT will become the LSE's in-house software development team, gradually replacing current suppliers and bringing its intellectual property to the company. The vendor's CEO, Tony Weeresinghe, will report directly to LSE chief Xavier Rolet.

The LSE plans to begin migrating clients from TradElect and Infolect to the MillenniumIT system by the end of 2010, slashing trading speed from 2.7 milliseconds to less than a millisecond. TradElect will continue to be upgraded in the interim.

The exchange says the new platform will allow it to "enrich" its functionality, in particular for Italian clients, with the possibility of accommodating both trading after hours and stop loss orders.

Xavier Rolet, CEO, LSE, says: "Improving our technology and increasing our competitive position in the fast-moving trading environment is vital. This transaction enables the Group to implement a new, more agile, innovative and efficient IT capability for our future business development as well as running a new cash trading platform which will provide substantially lower latency, significantly higher capacity and improved scalability."

In addition, the LSE hopes the vendor will provide it with a new source of revenue through its existing contracts and potential new clients.

The acquisition should also see IT development and operational costs slashed, resulting in annual savings of at least £10 million from full year 2011-12.

Rolet says the deal will "offer cost saving opportunities in the future and give the Group a footprint in Asia. Moreover, MillenniumIT is a proven business, already serving multiple clients in multiple geographies, including some of the best known in their fields. The potential from this transaction is considerable for both parties."

Depreciation of investment in the current TradElect trading platform will be accelerated and further planned upgrades that take place in the interim will be taken as operating expenses in the period they occur. In total, these are expected to represent non-recurring incremental costs of £25 million in FY 2010 and £6 million in FY 2011.