The London Stock Exchange (LSE) has agreed revised terms for increasing its stake in LCH.Clearnet from 2.3% to a majority 57.8% holding, which will see it pay €15 per share.
The original deal was announced in December, shortly before Christmas, when the LSE said it would pay €366m – about €100m below the original offer price – for a 60% stake.
The revised terms announced on 7 March sees LSE paying up to €328m cash paid at completion and up to a further €23m deferred consideration paid in 2017. The deal also involves Nasdaq OMX increasing its share in the clearinghouse from 3.7% to 5%, with its chief executive officer (CEO), Bob Greifeld, expected to join the LCH board, although the minority stake gives it few powers.
The LSE says it envisages €25m in IT and other cost rationalisation savings from its takeover of LCH.Clearnet. The move is being driven by the need for central counterparties (CCPs) to clear previously over-the-counter (OTC) derivatives contracts, effectively forcing them ‘on exchange’ and increasing transparency regulations post-crash, which mean more responsibility and capital funding will be required by firms like LCH.Clearnet.
An earlier link-up between the LSE and clearer was scuppered by enhanced collateral rules for CCPs in Europe. As part of this latest arrangement the LSE will put an extra €185m into a €320m fund-raising effort in order to boost the capital available to LCH.Clearnet, allowing it to meet regulatory demands.
The increased stake of Nasdaq OMX is also helpful in this regard, although how two such rival exchanges will get along under the same roof remains to be seen. It does, of course, mean that the LSE can justifiably say that it supportive of the open access model where clearing services are available to multiple exchanges, rather than just the parent group under a vertical silo-type arrangement.
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