UK’s LSE shares surge on historic $ 2.7 b US index deal
Friday, 27 June 2014 00:00
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Reuters: The London Stock Exchange Group unveiled the largest acquisition in its history, snapping up US group Frank Russell for $ 2.7 billion to boost its position in the world’s largest financial services market and sending its shares surging.
Europe’s oldest independent bourse said on Thursday it would fund the long-awaited acquisition of the index provider and asset manager, which analysts have described as strategically sound, with a $1.6 billion rights issue and debt.
It said the deal, which catapults it into third position in the booming market for exchange traded funds (ETFs) behind global market leaders S&P Dow Jones and MSCI, would boost earnings in the first full year.
The acquisition, which requires approval from regulators and shareholders, would also create a powerful index compiler with around $9.2 trillion of benchmarked assets.
“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,” said LSE Chief Executive Xavier Rolet.
Analysts welcomed a deal that gives the London bourse a market share of around 13% in the booming ETF market – passive and low-cost funds that provide an alternative to active fund management.
“Everyone has expected it,” said Espirito Santo Investment Bank analyst Phil Dobbin. “People have been waiting to participate once it’s been announced.”
The company’s shares, which have risen around 15% since the start of this year, pushed more than 7% higher and were up 6.8% at 19.97 pounds by 1030 GMT (6.30 a.m. ET), outperforming a flat London FTSE 100 blue-chip index. The LSE, which said in May it was in exclusive talks with Russell’s owners Northwestern Mutual about a possible purchase, said the enlarged company would yield annual cost savings of $78 million and boost annual revenues by $30 million by year three. Annual revenues would rise by almost $50 million by year five, it said.
The bourse said it was reviewing the position of Russell’s investment management business, which has $256 billion in assets under management, but declined to comment on the options for a business analysts say does not provide an obvious fit.
