The London Stock Exchange Group today took a significant step in its attempts to complete its mega-merger with Deutsche Boerse, agreeing the sale of its French clearing business.
Euronext, the owner of four of Europe's largest stock exchanges, confirmed it has agreed a €510m (£434m) deal for LCH SA, which the LSEG put up for sale in September in an attempt to ease EU competition concerns around its £21bn Deutsche Boerse deal.
In a statement this morning, LSEG said it and LCH Group had agreed terms with Euronext, which owns the main Paris, Portuguese and Belgian stock exchanges. Euronext shareholders will vote on the deal at an extraordinary general meeting in the first quarter of this year.
It's an attractive asset – LCH SA generated net profits of €36m in 2015, with net assets of €303m. In the six months to the end of June last year, gross income hit €69m, on net assets of €301m.
The deal has been rumoured for some time – although LSEG entered exclusive talks over the deal with Euronext just before Christmas, US companies including Nasdaq and CME Group were also thought to be sniffing around the deal
The tie-up, which was first hinted at back in October, will help clear the way for LSEG's £21bn tie-up with Germany's Deutsche Boerse, due to complete in the first half of this year.
Last month the European Commission set out a statement of objections over the merger, narrowing its focus to clearing, which is thought to have spurred LSEG into accelerating talks.
Analysts at Numis said in a note:
We believe a sale to Euronext might go some way to appeasing the European Commission’s many concerns, but we remain mindful of the many challenges that still need to be overcome for it to complete (competition authorities, regulatory concerns, national pride) and the long list of failed M&A deals within this sector.
Euronext chief executive Stephane Boujnah has previously expressed concerns over the London Stock Exchange-Deutsche Boerse tie-up, warning it would create a “virtual monopoly”.
But he beleives the LCH SA deal, which will only complete if the mega-merger goes ahead, puts Euronext in a win-win situation.
Behind the deal
The London Stock Exchange was aiming to push through a deal for LCH SA before Christmas but, with four parties involved – itself, Deutsche Boerse, Euronext and LCH Group – this did not prove possible.
LCH Group was advised on the deal by boutique Greenhill, whose team was led by Lord James Lupton – the bank’s co-founder and a former national treasurer of the Conservative Party – and Pieter-Jan Bouten, a managing director.
A JP Morgan Cazenove team fronted by Jeremy Capstick and Kirshlen Moodley was lead adviser to the London Stock Exchange Group, while Societe Generale was also on this side of the deal.
Rothschild was sole financial adviser to Euronext.