Acquisition of 100% of London Stock Exchange Group Holdings Italia S.p.A., the holding company of the Borsa Italiana Group for a cash consideration of €4,325 million

The Borsa Italiana Group (€464 million revenue and €264 million EBITDA in 2019) to play a key role in the future operations, strategy and governance of the Combined Group as its largest revenue contributor

Strong support from Cassa Depositi e Prestiti (through CDP Equity5 (“CDPE”), 100%-owned) and Intesa Sanpaolo as strategic investors, with long-term commitment to support the growth of the Borsa Italiana Group, to attract SMEs to the capital markets and to support Euronext’s growth ambitions

Creation of the leading player in European capital markets infrastructure, strengthening Euronext’s leadership in European cash equities, while adding significant capabilities in fixed income trading and increasing post trade activities with a fully-owned, multi-asset clearing house and a scale CSD

Widening of the product offering across the value chain and deepening of the liquidity pool to bring significant benefits for European capital markets and the Italian financial ecosystem

Financing of the transaction fully secured by a bridge loan financing and long-term financing to be implemented through a mix of (i) existing available cash, (ii) new debt and (iii) new equity in the form of a private placement to CDP Equity and Intesa Sanpaolo and a rights offer to Euronext’s shareholders

Transaction expected to be accretive to the adjusted EPS (before synergies) immediately, to generate a total of €60 million pre-tax run-rate synergies by year 3, and to be double digit accretive in year 3 after synergies

Convening of an Extraordinary General Meeting of Shareholders to approve the transaction on 20 November 2020

The Managing Board and the Supervisory Board of Euronext have unanimously approved the transaction as they consider it to be in the best interests of Euronext, its shareholders and other stakeholders, and therefore ask that shareholders vote in favour of the resolutions tabled at the Extraordinary General Meeting.

The Reference Shareholders support the Proposed Combination and have each signed an irrevocable undertaking vote in favour of the resolutions tabled at the Extraordinary General Meeting.

?? ?? Euronext & Borsa Italiana to join forces to create the leading player in European capital markets. The combined group will be:
✔ The #1 listing venue in Europe
✔ The #1 venue for secondary markets in Europe
✔ The #1 venue in equity financing

? https://t.co/3zU7s0JO6k pic.twitter.com/wZmzEGKvFx

— Euronext (@euronext) October 9, 2020

Euronext announces that it has entered into a binding agreement with London Stock Exchange Group plc (“LSEG”) and London Stock Exchange Group Holdings (Italy) Limited to acquire 100% the entire issued share capital of London Stock Exchange Group Holdings Italia SPA, the holding company of the Borsa Italiana Group (the “Proposed Combination”), for a cash consideration of €4,325 million. This announcement follows the previous announcement made on 18 September 2020 by Euronext and CDP Equity that they had entered into exclusive discussions with LSEG regarding the potential acquisition of the Borsa Italiana Group.

The Proposed Combination will create a leading European market infrastructure in the European Union, whose central role to connect local economies to global markets is strengthened through the creation of the number one venue for listing and secondary markets for both debt and equity financing in Europe. This transaction significantly enhances the scale of Euronext, diversifies its business mix into new asset classes and strengthen its post-trade activities. With this transaction, Euronext delivers on its ambition to build the leading pan-European market infrastructure.

The potential transaction is conditional upon, amongst other things, the divestment of the Borsa Italiana Group or a material part thereof being a condition of the European Commission’s clearance decision for LSEG’s proposed acquisition of Refinitiv.

Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext said:

“The acquisition of the Borsa Italiana Group marks a significant achievement in Euronext’s ‘Let’s Grow Together 2022’ strategic plan and a turning point in our Group’s history. Thanks to this transaction, Euronext will significantly diversify its revenue mix and its geographical footprint by welcoming the market infrastructure of Italy, a G7 country and the third largest economy in Europe. The combination of Euronext and the Borsa Italiana Group, with the strategic support of long-term investors such as CDP, delivers the ambition of building the leading pan-European market infrastructure, connecting local economies to global capital markets. This transaction will enhance the position of the Borsa Italiana Group within continental European capital markets. The Proposed Combination will create the backbone of the Capital Markets Union in Europe. The Borsa Italiana Group will preserve its identity and integrity within Euronext’s federal model, while benefiting from enhanced governance, best-in-class offering and technology, to better serve the Italian capital markets.”

The Borsa Italiana Group overview

The Borsa Italiana Group is the integrated Italian market infrastructure, with operations diversified across regulated markets (Borsa Italiana), ELITE, fixed income trading (MTS, 62.5% owned by the Borsa Italiana Group), central counterparty clearing (CC&G), a central securities depositary (“CSD”) (Monte Titoli) and other business lines. As of 31 August 2020, 370 companies were listed on Borsa Italiana, with a total domestic market capitalisation of €545 billion. Between January and August 2020, average daily volumes of c.€2.5 billion in cash equity and more than c. €200 billion in fixed income were traded on the Borsa Italiana Group’s markets. In 2019, the Borsa Italiana Group generated €464 million of revenue and €264 million of EBITDA, and respectively €478 million and €278 million for the last twelve months period ending on 30 June 2020.

The combined revenue for the Combined Group amounted to €1.3 billion and EBITDA to €711 million for the Financial Year 2019, and respectively €1.4 billion and €795 million for the last twelve months period ending on 30 June 2020. Italy will be the largest revenue contributor to the combined group with 34% of the total 2019 combined revenue. The Italian eco-system will benefit from best-in-class offering and technology, while local expertise in fixed-income trading and post-trade will be further enhanced by the group’s enlarged scale.

Strategic rationale

The Proposed Combination of the Borsa Italiana Group and Euronext will create the leading pan-European market infrastructure. This transformational project positions the newly formed group to deliver the ambition of further building the backbone of the Capital Markets Union in Europe, while at the same time supporting local economies. The Combined Group will benefit from an attractive and more diversified geographical footprint.

The Combined Group will be:

The #1 listing venue in Europe with more than 1,800 companies listed and €4.4 trillion aggregate market capitalization of listed companies11;
The #1 venue for secondary markets in Europe, with c.€11.7 billion worth of equities traded on a daily basis12; and
The #1 venue in equity financing, with more than €42 billion raised in 2019 from investors to finance companies across Europe.

The Borsa Italiana Group and Euronext will combine their strong listing franchises to facilitate access to equity financing for companies, with a specific focus on small and medium-sized enterprises (“SMEs”), family-owned and tech companies, and to develop ELITE, the international business support and capital raising platform for ambitious and fast growing companies, in a pan-European framework.

Borsa Italiana will join the Euronext single order book which offers a unique gateway to investors accessing the largest liquidity pool in Europe. This single liquidity pool is powered by Optiq®, a proprietary state-of-the-art technology, offering a unique entry point to all Euronext’s securities and products to both local and global institutional and retail investors.

Euronext will achieve enhanced business diversification with new capabilities in fixed income trading and clearing, as well as consolidation of CSD businesses. With the addition of MTS, the Combined Group will operate the leading European government bonds trading platform covering the full scope of fixed income products. The acquisition of CC&G, a multi-asset clearing house, will complete the post-trade value chain by becoming the clearing house within the Combined Group and a key pillar of the enlarged Euronext’s post-trade strategy. The addition of Monte Titoli will more than double the size of Euronext’s CSD franchise, increasing assets under custody from €2.2 trillion to €5.6 trillion.

The Proposed Combination is expected to enhance Euronext and the Borsa Italiana Group’s businesses across all their segments. This complementarity is expected to lead to greater benefits for investors, issuers and shareholders, creating a more comprehensive offering, under a resilient business based on a strong core of services.

The Borsa Italiana Group and Euronext groups share the common ambition to support the transition towards sustainable growth with strong Environmental, Social and Governance culture and products, and their enlarged scale will represent a unique opportunity to accelerate this transition.

Financial impact and synergies potential

The Proposed Combination will provide compelling shareholder benefits. The transaction is expected to be immediately accretive on adjusted EPS before synergies and is expected to deliver double digit accretion including run-rate synergies in year 3.

Through the Proposed Combination, the Combined Group expects to deliver pre-tax run-rate synergies of €60 million per annum by year 3 as follow:

Pre-tax run-rate cost synergies of €45 million, primarily driven by (i) migration of Borsa Italiana’s cash equity and derivatives markets to Optiq®, Euronext’s state-of-the-art proprietary trading platform, (ii) additional technology synergies from co-operation of CSD businesses and (iii) leveraging the Combined Group capabilities, processes and systems.
Pre-tax run-rate revenue synergies of €15 million, driven by roll-out of Euronext’s single liquidity pool and single order book in Italy, development of a pan-European offering in derivatives products, product cross-selling and business growth opportunities such as deployment  of corporate services in Italy and identified opportunities to grow the span of market data and analytics offering.
Restructuring costs to deliver those synergies are expected to amount to €100 million.

Principal terms of the transaction and financing

The cash consideration to be paid to LSEG for the Proposed Combination will amount to €4,325 million. The consideration will be paid in cash at closing. The financing is fully secured through a bridge loan facility underwritten by a group of banks (Bank of America Merrill Lynch International Designated Activity Company, Crédit Agricole Corporate and Investment Bank, HSBC France and J.P. Morgan Securities plc.).

The final financing of the Proposed Combination includes:

~€0.3 billion of use of existing cash;
~€1.8 billion of new debt to be issued;
~€2.4 billion of new equity to be issued, including (i) a private placement (~€0.7 billion16) to CDP Equity and Intesa Sanpaolo, two cornerstone Italian investors and (ii) a rights offer to Euronext’s existing shareholders (including CDP Equity and Intesa Sanpaolo)
Euronext is committed to maintaining an investment grade credit rating aligned with its robust financial structure, with pro forma net leverage17 estimated at 3.4x at 30 June 2020 and expected to reduce below 3x by 2022. Euronext does not expect any change in dividend policy.

Governance, management and supervision

As a new major country in the Euronext federal model and as the largest revenue contributor, Italy will be represented at group level in Euronext’s governance by Italian representatives, among the Reference Shareholders, and also within the Supervisory Board, the Managing Board and the College of Regulators supervising Euronext group’s activities.

CDP Equity and Intesa Sanpaolo will join the group of Euronext’s long-term Reference Shareholders through the subscription of a private placement, taking place in connection with the completion of the transaction, with CDPE acquiring a stake of c.7.3%, in line with stakes held by the largest Reference Shareholders of Euronext (post dilution of the private placement), and having a representative on the Supervisory Board of Euronext. Post dilution of the private placement, Intesa Sanpaolo will own a c.1.3% stake.

The presence of strategic investors with long term investment horizon such as CDP Equity and Intesa Sanpaolo, will further support the Borsa Italiana Group and Euronext’s growth ambitions while facilitating the access of SMEs to capital markets.

As part of the transaction, CDP Equity and Intesa Sanpaolo intend to become long-term Reference Shareholders. As such, Euronext has been informed that its Reference Shareholders, CDP Equity and Intesa Sanpaolo will enter into an extension and amendment agreement in relation to the Reference Shareholders’ agreement before completion of the Proposed Combination. The Reference Shareholders (on completion of the Proposed Combination, including CDP Equity and Intesa Sanpaolo), acting jointly, will continue to have the right to propose one third of Euronext’s Supervisory Board seats, which will include a representative of CDP Equity. The amended Reference Shareholders’ agreement will provide for a three-year lock-up of certain of the Reference Shareholders’ ordinary shares in Euronext, subject to certain exceptions. More information on the amended Reference Shareholders’ agreement can be found in the shareholder circular available on www.euronext.com.

An Italian candidate will also be proposed as an independent member of the Supervisory Board and will become the Chair of the Combined Group.

Euronext will recommend that Commissione Nazionale per le Società e la Borsa (“CONSOB”) is invited to join Euronext’s College of Regulators, becoming part of the supervision of Euronext at group level pari passu with other European regulators with a rotating chair every semester. Direct regulatory oversight of the Borsa Italiana Group will remain unchanged allowing CONSOB and Banca d’Italia to continue directly supervision of the Borsa Italiana Group’s activities.

The Borsa Italiana Group will maintain its current functions, structure and relationships within the Italian ecosystem and preserve its Italian identity and strengths. The Italian CEO of the Borsa Italiana Group will join the Managing Board of Euronext. The CEO of MTS will join the extended Managing Board, alongside the other key leaders of large business units and key central functions of Euronext, with group-wide responsibilities for fixed income trading. Borsa Italiana’s knowledge, expertise and understanding of the specific features of the Italian market will be a fundamental element of enrichment for Euronext and will be valued and preserved. The combined group will strengthen Borsa Italiana as the go-to venue for listing and trading in Italy and continue to develop their programmes to facilitate the access to equity financing for companies, with a specific focus on SMEs.

Key businesses and some central functions of the combined group will be based in Milan and Rome and the leadership of the group finance function will be located in Milan.

Extraordinary General Meeting

Euronext will convene an Extraordinary General Meeting to be held on 20 November 2020 to submit the Proposed Combination, private placement and rights offer for approval. A shareholder circular with more details on the Proposed Combination is available on www.euronext.com. Shareholders are advised to read the whole shareholder circular carefully before making any decision.

The Managing Board and the Supervisory Board of Euronext have unanimously approved the transaction as they consider it to be in the best interests of Euronext, its shareholders and other stakeholders, and therefore ask that shareholders vote in favour of the resolutions tabled at the Extraordinary General Meeting.

The Reference Shareholders support the Proposed Combination and have each signed an irrevocable undertaking vote in favour of the resolutions tabled at the extraordinary general meeting.

Expected timetable

Completion of the Proposed Combination will be subject to Euronext’s and LSEG’s shareholder approvals, regulatory approvals in Italy, the United Kingdom, the United States, Belgium and France, declaration of non-objection from Euronext’s College of Regulators, competition clearance in Germany, and approval of Euronext as a suitable purchaser by the European Commission. The potential transaction is conditional upon, amongst other things, the divestment of the Borsa Italiana Group or a material part thereof being a condition of the European Commission’s clearance decision for LSEG’s proposed acquisition of Refinitiv.

The completion of the Proposed Combination is expected in the first half of 2021.

Source: Euronext

No fragmentation, just consolidation and more concentration. No increase in competition in EU markets. From a competing angle to operate an exchange under the roof of a 3 rd country venue is more competitive. #mifid2 @EU_Commission @EU_Competition https://t.co/q5C2t1nJA1

— Mark Spanbroek (@spanbroekmark) October 9, 2020

LSEG statement: Proposed Divestment of the Borsa Italiana Group to Euronext N.V. for €4.325 billion

Further to the announcement on 18 September 2020 regarding London Stock Exchange Group plc (LSEG) entering into exclusive discussions with Euronext N.V. (Euronext) in relation to the sale of the Borsa Italiana group (Borsa Italiana), LSEG confirms it has agreed to sell its entire shareholding in London Stock Exchange Group Holdings Italia S.p.A (LSEG Italia), the parent company of Borsa Italiana, to Euronext for an equity value of €4.325 billion, plus an additional amount reflecting cash generation to completion (the Transaction). The Transaction is conditional upon, amongst other things, the divestment of Borsa Italiana or any material part thereof (including MTS S.p.A. (MTS)) being a condition of any European Commission (EC) clearance decision for the Refinitiv transaction (the Refinitiv Transaction).

Background
LSEG announced on 31 July 2020 that, in the context of the EC’s Phase II review of the Refinitiv Transaction, it had commenced exploratory discussions which may result in a sale of LSEG’s interest in MTS or potentially Borsa Italiana as a whole. Having launched a sale process for each of MTS and Borsa Italiana and having weighed the merits of the divestment of each in the context of the EC’s Phase II review of the Refinitiv Transaction, LSEG concluded it was in the best interests of shareholders to divest Borsa Italiana as a whole. LSEG also noted the additional benefits of keeping the MTS and Borsa Italiana businesses together for their customers and stakeholders. As a result, and having received and reviewed a number of competitive proposals from several parties for each of MTS and Borsa Italiana, LSEG announced on 18 September 2020 that it had entered into exclusive discussions with Euronext. Those discussions led to the signing of a Share Purchase Agreement (the SPA) between LSEG and Euronext on 9 October 2020.

.@LSEGplc announces proposed divestment of the Borsa Italiana Group to @euronext for €4.325 billion https://t.co/a4x2uPbgZk

— London Stock Exchange Group (@LSEGplc) October 9, 2020

Reasons for the Transaction
While the EC’s review of the Refinitiv Transaction is still ongoing, it is LSEG’s expectation that a divestment of Borsa Italiana or a material part thereof (including MTS) will be a condition to any EC clearance for the Refinitiv Transaction. The entry into the SPA, the approval by the EC of Euronext as the acquirer of Borsa Italiana and the receipt of certain other approvals for the Transaction, are therefore expected to be critical factors in the successful attainment of merger control clearance for the Refinitiv Transaction from the EC.

Whilst the principal benefit of the Transaction is to facilitate the completion of the Refinitiv Transaction, the divestment, which represents an enterprise valuation multiple of 16.7x 2019 adjusted EBITDA,(1) allows LSEG to achieve an attractive valuation for Borsa Italiana. The Board believes that the overall strategic rationale for, and financial benefits of, the Refinitiv Transaction remain compelling notwithstanding the divestment of Borsa Italiana.

LSEG is expected to receive proceeds in cash on closing (before deductions of applicable taxes and other transaction related costs) of €4.325 billion plus an additional amount reflecting cash generation to completion. It is LSEG’s intention to use the net proceeds from the Transaction to repay indebtedness related to the Refinitiv Transaction and for general corporate purposes. This will allow LSEG to reduce leverage following completion of the Refinitiv Transaction, bringing LSEG closer to its target net debt to adjusted EBITDA ratio of 1.0-2.0x within a desirable timeframe.

Commenting on the Transaction, David Schwimmer, CEO, LSEG, said:
“We continue to make good progress on the highly attractive Refinitiv transaction and we are pleased to have reached this important milestone. We believe the sale of the Borsa Italiana group will contribute significantly to addressing the EU’s competition concerns. The Borsa Italiana group has played an important part in LSEG’s history. We are confident that it will continue to develop successfully and contribute to the Italian economy and to European capital markets under Euronext’s ownership.”

Commenting on the Transaction, Raffaele Jerusalmi, CEO, Borsa Italiana S.p.A, said:
“We have enjoyed a long and successful relationship with LSEG, which has invested in and developed our business over the last 12 years. We look forward to embarking on the next phase of our history, working in partnership with Euronext, CDP Equity and Intesa Sanpaolo to further develop our business and to contribute to the development of European capital markets.”

Terms of the Transaction
As Euronext is an 11.1 per cent shareholder of LSEG’s subsidiary LCH S.A., Euronext is deemed to be a related party of LSEG for the purposes of the Listing Rules. The Transaction is therefore considered a related party transaction and is conditional upon the approval of LSEG’s shareholders at a General Meeting. The Transaction also constitutes a Class 2 transaction under the Listing Rules.

The sale of Borsa Italiana to Euronext is supported by the Board of LSEG who intend to recommend that shareholders vote in favour of the resolution to approve the Transaction at a General Meeting to be convened in due course.(2) The Company will shortly publish a shareholder circular setting out further details of the Transaction and including a Notice of General Meeting, which is expected to be held in early November 2020.

Completion of the Transaction will be dependent upon the divestment of a member of Borsa Italiana being a condition of any EC clearance decision for the Refinitiv Transaction, the EC having confirmed that it either approves or does not object to Euronext as the purchaser of Borsa Italiana and the Refinitiv Transaction closing in accordance with its terms (each of such conditions being waivable by LSEG). The Transaction is also subject to approval by LSEG’s and Euronext’s shareholders. With respect to Euronext’s shareholder approval, Euronext’s Reference Shareholders (which account for 23.3% of the Euronext issued share capital) have undertaken to vote their shares in favour of the shareholder resolution approving the Transaction. The Transaction is also conditional on required anti-trust and regulatory approvals including under Italy’s foreign direct investment regime.

The Transaction is expected to close in the first half of 2021. LSEG expects to complete the Refinitiv Transaction by the end of 2020 or early in 2021, ahead of completion of this Transaction.

Description of Borsa Italiana
Borsa Italiana, which comprises LSEG Italia and its subsidiaries, constitute a European financial markets and infrastructure business which comprises, inter alia: (i) Borsa Italiana S.p.A, the operator of the Italian stock exchange, in which LSEG Italia holds a 99.99% stake; (ii) MTS S.p.A., the European fixed income trading venue in which Borsa Italiana S.p.A holds a 62.53 per cent. majority stake; (iii) Cassa di Compensazione e Garanzia S.p.A., the Italian clearing house; and (iv) Monte Titoli S.p.A., an Italian-based custody and settlement business.

In the financial year ended 31 December 2019, Borsa Italiana contributed adjusted EBITDA of €280 million and profit before tax of €200 million to LSEG, and had gross assets of €1,843 million (excluding central counterparty clearing (CCP) assets).

Source: LSEG