The US-based Depository Trust and Clearing Corporation is to buy London's LCH.Clearnet for a total consideration of €739 million in an effort to create the world's leading clearing house.
The non-binding agreement values the LCH.Clearnet at €10 a share. Talks between the two have been ongoing ofr at least a year, but definitive terms are not expected to be ready until March next year.
Euroclear, currently the largest shareholder in LCH.Clearnet, with a holding of 15.8%, intends to support the transaction in principle and remain a shareholder of LCH.Clearnet HoldCo. Roger Liddell will be the CEO of the new LCH.Clearnet HoldCo and the DTCC's Donald Donahue will take the chair.
Under the proposals, DTCC's existing European subsidiary, EuroCCP, will join with the new LCH.Clearnet HoldCo to form a single European clearing business. DTCC says LCH.Clearnet will adopt the user-owned, non-profit model applied in the US.
The combined group expects to realise significant cost savings in information technology and from economies of scale and and more efficient collateral management. Initial indications suggest that synergies would amount to approximately seven to eight per cent of the combined group's operating costs.
Donald Donahue, chairman and chief executive officer of DTCC says of the transaction: "We expect our customers will not only see significant cost savings in the clearance and settlement of the many securities and instruments we already service, but also greater access to a more diverse range of product offerings and support of emerging asset classes."
A good example of this, he says, would be closer links between Swapclear's support of interest rate derivatives and Deriv/SERV's capabilities in credit default swaps.