Shares in London Stock Exchange (LSE) jumped 15% to a new all-time high of £65.15 after the company confirmed that it is in discussions to buy Refinitiv for $27bn.
Refinitiv is a leading provider of financial data and infrastructure with businesses covering investment, trading, wealth and risk management. Its majority owners are Thomson Reuters and US private equity firm Blackstone.
Together LSE and Refinitiv would be the largest listed global financial markets infrastructure provider in terms of turnover with combined annual revenues of more than £6bn last year.
As well as being able to offer its customers more services, LSE estimates that the combination would increase earnings per share for shareholders in the first full year after the merger is completed and that annual cost savings could reach £350m after five years.
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Shares flagged LSE as a great growth stock for ISA investors in March when the shares were trading at just over £46 and we said at the time that acquisitions were likely to be on the agenda.
Although $27bn sounds like a hefty price, and the deal is being financed entirely in new shares, today’s price reaction suggests that chief executive David Schwimmer is onto a winner with Refinitiv.
As financial markets and LSE’s customers themselves become increasingly reliant on sophisticated data and analytics, it makes sense to combine its own market infrastructure and index data business (FTSE Russell) with Refinitiv’s vast data and technology business and its trading venues business.
Refinitiv’s trading business includes the Tradeweb platform, where it owns a majority interest, and the FXAll and Matching platforms which turn over in the region of $400bn in foreign exchange and $500bn in fixed income per day.
In January of this year LSE acquired a minority stake in Euroclear, a rival market infrastructure company, in order to reinforce its existing commercial deal and lay the ground for future collaboration.
That deal flew under the regulators’ radar as it was small in size and both firms have an open access approach, but the Refinitiv deal is far bigger and transforms LSE into a major player in the provision of data, real-time pricing and news in a market with few competitors.
Therefore there is a strong likelihood that regulators in the US and the EU will launch competition probes into the pricing and availability of financial data.
