London Stock Exchange announces proposed acquisition of Russell group

Source: London Stock Exchange

London Stock Exchange Group plc announces the proposed acquisition of the entire issued share capital of Frank Russell Company from Northwestern Mutual and other minority shareholders of Russell for total cash consideration of US$2,700 million (£1,590 million)

The Directors believe the Acquisition is a rare opportunity to acquire a high quality US business with a leading global brand providing index and investment management services
Combination of Russell's index business with FTSE creates a global leader in index services and the No. 2 player in US-listed ETFs
Brings together US$5.2 trillion of assets benchmarked to Russell and an estimated US$4.0 trillion of equities benchmarked to FTSE
Further develops LSEG's intellectual property portfolio
Accelerates LSEG's diversification strategy and enhances its Information Services offering, particularly in the US
Allows LSEG to capitalise further on key industry trends such as strong growth in multi-asset solutions and passive investment strategies
Strengthens and deepens LSEG's relationships with global clients and other stakeholders
Russell's investment management business is one of the leading providers of multi-asset class investment solutions to institutional and retail investors worldwide
With US$256 billion2 AUM, the business is a highly regarded investment platform poised for continued growth in a large and growing market
The business utilises the integration of five distinct investment capabilities: portfolio construction, capital market insights, manager research, indices and portfolio implementation
Russell's approach and capabilities are positioned to focus on outcome-orientated investment solutions
LSEG will undertake a comprehensive review of Russell's investment management business to determine its positioning and fit with the Group
LSEG is committed to maintaining a clear focus on client service, fund performance and management and employee stability, whilst ensuring appropriate standalone governance
Russell's President and Chief Executive Officer, Len Brennan, will join the Executive Committee of LSEG at Completion
Approximately US$1,600 million (£942 million)1 of the consideration will be financed from the net proceedsion will be financed from the net proceeds of the Rights Issue, with the remaining approximately US$1,100 million (£648 million)1 financed from existing and new LSEG bank debt facilities
The Directors expect the Acquisition will deliver highly attractive financial returns
Annual run-rate cost synergies of US$78 million (£46 million)1 by the end of year three, and annual run-rate revenue benefits of US$30 million (£18 million)1 and US$48 million (£28 million)1 by the end of years three and five, respectively
Earnings accretive in the first full year on an aggregate basis, with Russell's index business accretive from year two on a standalone basis3,4
ROIC that meets LSEG's hurdle rate in year three and exceeds it thereafter, on an aggregate and standalone index business basis3,4
Pro forma leverage is expected to be approximately 2.4x net debt to EBITDA as at Completion and is expected to reduce to 2.0x or below in the 12 months following Completion3,4
The Acquisition is classified under the Listing Rules as a Class 1 transaction and accordingly is conditional on the approval of Shareholders which is anticipated in September 2014
The Rights Issue is expected to be launched in September 2014, after the approval of the Acquisition by Shareholders

Commenting on the Acquisition, Xavier Rolet, Chief Executive of LSEG, said:

"The acquisition of Russell is another significant milestone for LSEG. It sits squarely with our diversification strategy, builds on one of our core strengths in intellectual property and provides another key driver of growth by growing our presence in the US, the largest global financial services market. Russell's index management business is a strong strategic fit with FTSE. With this acquisition we are strongly positioned for the changing dynamics in the global indices market with a best in class offering, which we believe will help deliver outstanding returns for our shareholders. We will work with Len and his team to review the investment management business and determine its fit with the Group. This is a very high quality business with a track record of innovation and a world-class client and employee base, and we are committed to preserving the qualities that have attracted these clients and employees to the firm."

Len Brennan, President and Chief Executive Officer of Russell, said:

"LSEG and Russell are two of the most highly respected financial services firms in the world, and this joining of the two organisations offers many strategic benefits. The combination of our index business with FTSE creates a truly global index leader, with a highly complementary fit of products and distribution capabilities and a unique position as a leader in major domestic market benchmarks as well as international equities. Russell's investment management business has been a pioneer in innovation in the areas of passive management and smart beta and incorporating such strategies into our multi-asset solutions, and we are committed to maintaining the highest standards of client continuity and service."

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