09.28.2011
By Terry Flanagan

LSE in Exclusive Talks with LCH.Clearnet

The London exchange operator has entered into exclusive discussions to acquire the independent clearing house after a rival offer from Markit was dropped.

“London Stock Exchange Group is pleased to confirm that it has entered into exclusive discussions with LCH.Clearnet regarding a potential transaction,” said the LSE in a statement. “Work is focused and on-going, with a view to moving towards an agreement, though at this stage there can be no certainty that any transaction will result.”

The move by the LSE comes at a time when several competitors are looking to, or have already done the same. TMX Group has said that one of the benefits of its proposed deal with Maple Group is the consolidation of Canadian clearinghouses.

“This is definitely the most logical move for the LSE, it lets them expand vertically through the trading cycle,” said Simmy Grewal, exchange European exchange analyst with Aite Group. You can see them evolving their business. People talk heavily about market share falling with the LSE, but they only make about 15 to 16 percent of their overall revenue from trading. Having LCH and creating a clearing capacity is definitely a step to widen the spectrum of products they offer as a group. People see it as a positive move for the LSE.”

An LSE spokesman and an LCH.Clearnet spokeswoman declined to comment any further on the matter than what was stated on the respective releases.

While the acquisition has the support of the 21 LCH.Clearnet board members, the proposal still needs to garner approval from its 98 shareholders. The clearer is 83 percent owned by clients and 17 percent owned by exchanges.

The announcement comes the day after the other proposed buyer for LCH.Clearnet, Markit, announced that it had dropped out of the running due to a lack of board member support.

“We see clearing as complementary to our other services and LCH.Clearnet represented a unique opportunity to acquire an important piece of market infrastructure,” Markit said in a statement. “We unfortunately did not receive the LCH.Clearnet board support required to move ahead and seek shareholder support.

The LSE’s offer is said to be €21 ($28.63) per share for 51 percent of the clearer, while Markit’s bid was €12 per share for 100 percent of LCH.

The news of LSE’s discussions on a possible acquisition of the clearing house comes some two months after its bid for Canada’s TMX Group failed due to a lack of shareholder support. Industry observers noted at the time that the LSE would itself become a takeover target.

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