By Ben Dummett
London Stock Exchange Group PLC said early Saturday it is in advanced talks to buy financial-information and terminal business Refinitiv Holdings Ltd. from a Blackstone Group Inc.-led consortium for almost $15 billion, in one of the biggest bets yet on data as a new source of growth for global exchange operators.
Stock-exchange operators face growing pressure on fees they generate from the buying and selling of stocks amid new competition and computerized trading. That has historically pushed exchange businesses to buy up rivals to boost revenue and cut costs. But the European Union's decision in 2017 to block the LSE's $30 billion merger plan with Germany's Deutsche Börse AG -- one of several big exchange deals to be upended in recent years -- shows this consolidation strategy can be difficult to execute.
The acquisition of Refinitiv is meant to help the LSE meet that challenge by further expanding its business as a data provider to investors and companies. Last year, the LSE's information-services business grew revenue by 9% to GBP841 million ($1.04 billion) from the year-earlier period, benefiting from strong growth in subscription-renewal rates and data sales for its exchange-traded-fund products. That growth rate was more than double the LSE's more traditional capital-markets business.
Refinitiv, already a supplier of fixed-income data to LSE's index business, would give the U.K.-based exchange operator access to its array of data and analytical tools such as the Eikon financial-data terminal and other products that are used by more than 40,000 customers, including brokerage firms, institutional investors, governments and corporations. Refinitiv also operates the Tradeweb, FXAll and Matching platforms among others that handle on average daily trading volume of over $400 billion in foreign exchange and $500 billion in fixed income.
The LSE is negotiating to acquire Refinitiv from Blackstone, which together with its partners Canada Pension Plan Investment Board and Singapore's GIC Pte own about 55% of the financial-data company, and Thomson Reuters Corp., a holder of a 45% stake in the business. The deal would represent a quick turnaround for Blackstone, which agreed to acquire control of the business less than two years ago in a deal that valued the new firm at $20 billion, including debt.
The LSE, with a market value of about $24.5 billion, said Saturday it expects to value Refinitiv at $27 billion, including debt, if the acquisition goes ahead. Excluding the data provider's debt of $12.2 billion at the end of December, the LSE would be paying about $14.8 billion for the business.
The leverage LSE would take on from the deal is "high but acceptable," Exane BNP Paribas said in a research note.
The exchange operator cautioned that the talks could still collapse. But if an agreement is reached, the deal would create a company with combined annual revenue of more than GBP6 billion, more than triple the revenue that the exchange operator generated last year. The LSE also said the deal would generate annual cost savings exceeding GBP350 million that would be achieved in the five years after the deal's completion.
Still, the acquisition would represent a risky bet for the LSE's newly appointed chief executive, David Schwimmer, an ex- Goldman Sachs Group Inc. banker who has been in the top job for just under a year. The size alone would dwarf some of the recent data-related transactions in the exchange space, such as Nasdaq Inc.'s $220 million acquisition earlier this year of Swedish financial-technology provider Cinnober. The deal would also stand out among some of the sector's larger transactions including Intercontinental Exchange Inc.'s $5.2 billion bid for Interactive Data Corp. in 2015 and the LSE's $2.7 billion purchase in 2014 of index-service provider Frank Russell Co.
By pursuing Refinitiv, LSE management would likely face a monthslong regulatory review of the transaction and a complex integration process as it seeks to achieve the deal's revenue and cost-cutting benefits. Furthermore, if the deal's benefits fall short of expectations, it could prove dilutive to shareholders as the LSE said that it would use stock to help fund the takeover.
The LSE's stock price has surged roughly 42% since the middle of December, allowing the company to more easily contemplate a stock deal for Refinitiv. Still, the deal's inherent risk could spur shareholder opposition if the bet jeopardizes that stock-price gain.
In a deal with Refinitiv, LSE indicated that it would own about 63% of the enlarged company, which would continue to be based in London. That is key to U.K. support for the deal since London is fighting to hold on to its role as a financial center once the country carries out its divorce from the EU as early as this October.
Refinitiv's shareholders would own about 37% of the enlarged LSE and hold less than 30% of the total voting rights.
Write to Ben Dummett at [email protected]