Saturday 16 December 2017

London Stock Exchange slashes offer for clearing house by a quarter

Paul Sandle

The London Stock Exchange has cut its offer for a majority stake in transatlantic clearing house LCH.Clearnet by a quarter to €366m to reflect new capital requirements.

The companies said today they agreed a new price of €15 a share after estimating that new European rules on clearing houses could require LCH to raise €300m in additional capital next year.

Analysts said the lower offer meant that the LSE would claw back most of the cost of the new rules, which are meant to protect clearing houses from the impact of a major customer defaulting.

"Today's announcement is a success for LSE shareholders," Peter Lenardos, analyst at RBC Capital Markets said in a note. "We believe that shareholder approvals will be sought in January and we still expect the transaction to complete in the first quarter of 2013."

Shares in LSE were trading 0.09 percent lower at £10.92 by 1039 GMT. The stock price hit a four-year high of £11.23 last week on consolidation hopes after commodities and energy exchange IntercontinentalExchange said it had agreed to buy NYSE Euronext for $8.2 billion.

The new €15 offer per share values the LCH at €610m. The LSE is buying a 60 percent stake in the clearing house.

The deal is made up of €14 a share in cash payable on completion of the acquisition and 1 euro payable on September 30 2017, replacing a special dividend previously announced.

The offer has been extended until the end of January and is subject to shareholder approval. LCH.Clearnet is owned by nearly 100 of the world's largest trading banks and two exchanges, the London Metal Exchange and NYSE Euronext.

Clearing houses sit between trading firms and ensure trades of securities such as stocks and bonds are completed, holding cash to refund firms left out of pocket by a counterparty default.

Demand for clearing transactions is set to jump in the next few years as regulators, chastened by the 2007-09 financial crisis, force banks to channel trades through clearing houses and regulated exchanges to ensure their risk positions can be better monitored.

If LCH has to raise €300m to meet the new capital rules, then the LSE's contribution would be €180m, in line with its expected 60 percent shareholding.

LCH is still in talks with regulators about how much capital it will need to raise.

Lenardos said he expected the LCH would only have to raise €220m and LSE's €122m saving on the deal would cover most of that.

"We believe the remaining value can be obtained through accelerated cost savings," he said.


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