London clearing house LCH.CLearnet has reached an agreement in principle to buy out pan-European exchange Euronext, its largest shareholder.
LCH.Clearnet was formed three years ago by the merger of Clearnet, which was then 80%-owned by Euronext, and the mutually owned London Clearing House.
Euronext currently holds a 41.5% share in LCH.Clearnet, which is Europe's largest clearing house. The exchange's share in the business is made up of a normal equity stake of 24.9%, with the second part made up of convertible preference shares - which contain voting rights - and make up the equivalent of a further 16.6% stake.
The parties have how reached an agreement on the early redemption of all of the preference shares at a value of approximately EUR199 million. The agreement also includes the repurchase of the ordinary shares - at a price of EUR10 per ordinary share, the value at which the shares were issued at the time of the LCH/Clearnet merger in 2003.
Euronext says it will retain a five per cent stake in the clearing unit. The exchange is also expected to keep a single seat on the LCH.CLearnet board.
Rumours surfaced last year that the exchage was set to drastically cut its stake in the clearing house. Talks with the LCH.Clearnet board were thought to have been kick-started by Euronext chief executive Jean-François Théodore, who doesn't believe that exchanges should own clearing houses and was thought to be keen to exit the business.
Customers of the clearing house have also complained that the ownership structure of the business - where Euronext holds four seats on the LCH.Clearnet board – is not in the best interests of customers and has not resulted in lower fees.
Lawmakers in Brussels have also been pushing against the vertically integrated model for exchange execution, clearing and settlement.
In a statement LCH.Clearnet says the repurchase is an opportunity for "customer and shareholder interests to be more closely aligned".
Says Chris Tupker, chairman of LCH.Clearnet: "As we respond to competitive changes in the clearing sector and the requirements of our customers, we have to ensure that LCH.Clearnet has the right operating model for this environment."
He says the repurchase deal "will better align customer and shareholder interests while retaining Euronext as a significant customer".
"At the same time, it will enable us to deliver aggressive clearing fee cuts and will also facilitate significant member rebates in due course," says Tupker.
LCH.Clearnet says a consultation with shareholders will take place in the second quarter of 2007, prior to the despatch of formal shareholder documentation.