The London Stock Exchange Group PLC’s US$14.5-billion, all-stock takeover of Refinitiv Holdings Ltd. is aimed at creating the world’s go-to markets operator and financial-data provider, elbowing Bloomberg LLC aside in the process.
The deal could well reorder how these critical services are delivered to the financial world by employing one-stop shopping for banks, trading houses and hedge funds. But the agreement, as envisioned, is far from a sure thing, and few companies know better than the LSEG how merger plans can go off track.
The exchange operator has been both predator and prey in a number of situations over the past two decades, and some of those deals fell apart – including one eight years ago when its friendly offer for the operator of the Toronto Stock Exchange was spurned.
The LSEG’s chief executive officer, David Schwimmer, said Thursday that he was not overly concerned about regulatory approvals affecting the viability of the deal.
The merger has a total price tag of US$27-billion when Refinitiv’s debt is factored in. It gives Refinitiv partners Blackstone Group Inc. and Thomson Reuters Corp. a 37-per-cent ownership in the combined entity and a less than 30-per-cent voting interest. The executive suite will be led by Don Robert, LSEG’s chairman, and Mr. Schwimmer as CEO. David Craig, Refinitiv’s CEO, will stay on to lead the acquired business and join the executive committee.
A key draw is a jump for the LSEG in recurring revenues – subscription-based sales – to 70 per cent of the total revenues from the current 40 per cent. In addition, the LSEG is aiming to strip out US$425-million in costs annually as it combines the companies and covers more geography with more products and services. “Increasingly, our customers want to trade across different regions and currencies with fewer firms that can do more for them across the value chain from capital markets to data, to clearing and settlement,” Mr. Schwimmer told analysts.
Before all that starts, though, the deal has to close and much can happen to complicate matters by the targeted completion in the last half of 2020. First, there are regulatory concerns on both sides of the Atlantic, and how authorities will rule on competition and concentration.
Analysts have raised the spectre of possible dispositions, and, if the LSEG is forced to jettison assets, that could reduce the attractiveness for Thomson Reuters, which has a 45-per-cent stake in Refinitiv, and Blackstone, which owns the remainder. For instance, some market participants have complained about rising costs for market data, so regulators are expected to zero in on any part of the deal that may increase prices or limit access for some players who do not subscribe to LSEG-Refinitiv products.
The deal requires approvals in the United States as well as in the European Union, which will examine the effects of the transaction as Britain gets set to bid farewell to the EU under new Prime Minister Boris Johnson. Recall that it was the EU that blocked the LSEG’s US$31-billion takeover of Deutsche Boerse in 2017 after Britain voted in favour of Brexit.
If the LSEG is denied regulatory clearances, it would pay Refinitiv a break fee of about US$240-million.
The LSEG acknowledged that it may have to sell assets, and that they could be “material,” although Mr. Schwimmer played down that risk, touting both organizations’ open-access approach to data delivery. “Our businesses are largely complementary. There is not a lot of overlap in the businesses. So we will work through the regulatory process,” he said.
Jim Smith, CEO of Thomson Reuters, told The Globe and Mail that he expects a thorough regulatory review before his company, which will have a 15-per-cent stake in the combined entity, can crystallize the gains that began with the creation of Refinitiv last year. Thomson Reuters is more than 65 per cent owned by Toronto-based Woodbridge Co. Ltd., the Thomson family holding company that also owns The Globe.
The LSEG has been at the centre of a number of false starts in addition to the failed bids for the TSX and Deutche Boerse. The latter and the LSEG have had several dances. The two had been in talks in 2000, but they ended without a merger, and four years later, the LSEG rejected an unsolicited bid from the German exchange, according to an exhaustive list by the Financial Times. In 2006, the LSEG rejected a bid from Nasdaq, which already had a sizable stake.
Now, many investors have applauded its change of acquisition strategy to concentrate on data and analytics as their value surges in the financial world. LSEG’s shares have climbed 24 per cent this week after first word of the impending announcement, including a 6.5-per-cent jump on Thursday.
All looks bright on day one when the ink is still wet. But a long review period can offer more than a few surprises that can make the finished product look very different from the blueprint.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.