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The London Stock Exchange on Friday unveiled a deal worth up to €463m to take a majority stake in LCH.Clearnet in a move that boosts its presence in post-trade services.
The LSE has agreed to pay €19 in cash per share for up to 60 per cent of the privately held clearing house, which stands between two parties to a trade, ensuring a deal goes ahead if one side defaults.
LCH.Clearnet shareholders will also be entitled to a special dividend of €1 a share after five years, giving a headline value for the deal of €20 per share. Such a figure implies a valuation of €813m for the whole of the group.
Xavier Rolet, LSE chief executive, said the deal was a “landmark” transaction for the LSE and shares in the group rose 7 per cent to 958½p in early morning trading in London on Friday.
LCH.Clearnet is 83 per cent-owned by banks and brokers, with the rest of the business split between NYSE Euronext, the US stock exchange operator, and the London Metal Exchange, which is in talks over a sale to its members.
Securing LCH.Clearnet would give the LSE its own clearing house in the UK at a time when the exchange business is dominated by groups that already own their clearing and at a time of regulatory upheaval.
Regulators are pushing greater use of clearing on the over-the-counter derivatives markets as a way of safeguarding the financial system against large defaults, in turn creating new business opportunities for exchanges, especially those with their own clearing houses.
Ownership of a clearing house allows an exchange to collect clearing fees that would otherwise go to an external provider, and helps exchanges launch new products faster. The LSE currently outsources clearing of UK share trading to LCH.Clearnet.
Daniel Garrod, analyst at Barclays Capital, said: “We believe there is strong strategic logic in LSE acquiring a majority stake in LCH … the clearer is well placed to be a key beneficiary of OTC derivatives reform.”
Mr Rolet said the LSE’s aim was to emerge with a stake of 51 per cent but added that it might temporarily rise to 60 per cent depending on demand for its offer.
Completion of the deal is expected by the fourth quarter of 2012, the two companies said.
Ian Axe, chief executive of LCH.Clearnet, will remain in his job after the deal concludes, as will Jacques Aigrain, its non-executive chairman.
The LSE said it would finance the deal from its cash resources and a €420m revolving credit facility agreed in December with Lloyds TSB Bank, Royal Bank of Scotland, Morgan Stanley and Bank of Tokyo-Mitsubishi UFJ. It has also agreed to subscribe up to a maximum of €24m of additional capital if required by LCH.Clearnet in order to meet the regulatory capital requirements.
LCH.Clearnet and the LSE had confirmed in September that they were in exclusive talks about a deal.