London Stock Exchange agrees deal to take control of LCH.Clearnet

London Stock Exchange agrees deal to take control of LCH.Clearnet

The London Stock Exchange is to acquire a majority 60% stake in LCH.Clearnet in a deal valuing the clearing house at EUR813 million.

The LSE will pay €20 for each LCH.Clearnet share, up to a maximum of €463 million. The Stock Exchange says the transaction has the approval of 46.9% of LCH.Clearnet's existing investors. It is expected to close the deal by the fourth quarter of 2012, subject to anti-trust clearance.

A successful acquisition is considered critical to the LSE's future competitiveness, providing it with a new source of revenue and a platform to take advantage of regulatory pressures to reduce risks in over-the-counter derivatives trading. The price to be paid by the LSE, at 38 times 2011 earnings for the clearer, reflects the strategic importance it places on the deal.

Ian Axe, chief executive officer of LCH.Clearnet says of the deal: "Transforming LCH.Clearnet into a best in class international CCP will be accelerated by the partnership's enhanced capabilities. We see significant revenue opportunities opening up as a result of both customer and regulatory demand for more efficient and more sophisticated tools to manage market risk."

Annual revenue synergies of up to €20 million are expected within the first three years of the combination, rising to €40 million by the end of year five.

LCH.Clearnet says it expects to reap €35.8 million annualised saving from the deal, with implementation costs hitting €41.4 million.

In addition, the combined entities have identified incremental cost savings of €23 million per annum by the end of year three and €25 million by the end of year five. One-off implementation costs are estimated to be €14 million.

Chris Gibson-Smith, LSE chairman says: "Strategically, structurally and financially this is a highly compelling transaction. Together, we have secured the enlarged group's long term role in the operation of international capital marketse."

Comments: (1)

Gary Wright
Gary Wright 09 March, 2012, 11:04Be the first to give this comment the thumbs up 0 likes

This is great news for the European securities markets and the FS firms and their clients. We can expect a reduction of risks and costs as this new structure is implemented. It also puts the LSE firmly in a position to grow and cement a dominant position as global Stock Exchange.

The Post Trade Forum will no doubt debate the benefits of this deal in the April meeting. See Post Trade Forum website on Finextra for details