Complex Deal Boosts London Exchange Before Brexit Kicks In

Deal-making accelerates as Brexit's new October 31 deadline looms.

At the beginning of August, markets and traders were caught off guard when the London Stock Exchange (LSE) announced its $27 billion purchase of Refinitiv, the financial-data, trading-platform, and risk-management business formerly owned by news agency Reuters. The deal, if approved by regulators, has goodies for everyone involved: the LSE, Refinitiv, Blackstone and Thomson Reuters.

The purchase, to be paid for with around $14.8 billion of new LSE shares plus over $12 billion of Refinitiv debt, will expand LSE’s trading business beyond shares and derivatives into currencies. It will also allow it to grow across regions at a moment when Brexit looms large and dark over London’s future as an international financial center.

For the LSE, which in 2017 was blocked by regulators in several attempts to merge with the Deutsche Boerse, the deal will provide “a defining moment,” as Don Robert, chairman of the LSE Group said in a comment on the official announcement. It will help the exchange remain a heavyweight in the industry.

Refinitiv was valued at $20 billion when it was created last October, as Thomson Reuters spun off its financial and risk business and sold 55% to the investment firm Blackstone. With the LSE purchase of Refinitiv, Blackstone and Thomson Reuters will become the LSE’s biggest shareholders, holding 37% of its shares and just under 30% of its voting rights between them.

Based on the original contract between Thomson Reuters and the Blackstone consortium that created Refinitiv, Reuters will keep supplying news at $325 million per year to the Eikon financial terminals, managed by Refinitiv (now LSE) for 30 years.

“This is really exciting,” says Chris Perry, president of Global Sales, Marketing and Client Solutions at Broadridge Financial Solutions. “Blackstone and its investors will have ‘flipped’ Thomson Reuters Financial and Risk very quickly. It is the kind of financial maneuvering that the likes of [presidential candidate] Bernie Sanders hates. No value creation but lots of people with money make more money.”

“LSE will have to decide what of the underlying business segments they will continue in and what will they dispose of,” continues Perry, a former global managing director of the Financial and Risk division at Thomson Reuters. “Is this just what the market needs and wants; or is it the next step in the shrinking of Thomson Reuters, a much bigger company 10 years ago?”