The London Stock Exchange has agreed to buy a majority stake in LCH.Clearnet, giving it an entry into the hotly contested clearing market and landing chief executive Xavier Rolet a much-needed trophy.
The LSE said it would become a majority owner of unlisted LCH.Clearnet, holding up to 60 per cent of the operator, and offering its owners 20 euros per share.
The offer, which implies a total value for LCH.Clearnet of 813 million euros, comes after months of exclusive talks between the two parties.
“This transaction delivers on our promise of 2009, to expand our post-trade operations,” Mr Rolet said, referring to administrative businesses such as clearing and settlement that take place after a trade has happened.
Mr Rolet had been in desperate need of an acquisition to help grow the LSE’s revenues, after his attempt to scoop up Canadian peer TMX fell through when shareholders stopped the $3.62bn acquisition last year.
The LSE differs from most of its rivals in not owning the clearing house for its main market, which has become more of a problem as clearing is becoming an ever more attractive area, while trading revenues are faltering.
Clearing houses sit between trading firms, acting as a central counterparty that reimburses companies on losses resulting from the default of a trading partner, like Lehman Brothers in 2008, or MF Global last year.
Regulators’ efforts to make trading safer after the crisis have made this a fast-growing business, and the takeover could help the LSE take advantage of new rules intended to overhaul the $600 trillion over-the-counter (OTC) markets.
The maximum payout for the LSE was 463 million euros, which it would fund from existing resources and bank facilities. It said it had received undertakings from investors holding 46.9 per cent of LCH.Clearnet shares to accept the offer.
The per-share offer of 20 euros comprised 19 euros in cash, and 1 euro from a special dividend payable by LCH.Clearnet in five years, which was subject to deductions, so the ultimate price for LSE to pay could still be slightly lower.
“(LCH.Clearnet) is in the business of managing defaults... in order to protect acquiring shareholders of any potential future claims, the dividend has been structured to that effect,” Mr Rolet said.
The LSE will hold a maximum of 60 per cent of LCH.Clearnet to allow some of the smaller of its 98 shareholders to sell out, but it would then seek to reduce its stake to 51 per cent.
It had been reported to offer about 21 euros per share for a 51 per cent stake of LCH, nearly double the rival bid by data vendor Markit of 12 euros a share.