The London Stock Exchange Group Plc (LON:LSE) revised its proposal to purchase clearinghouse, LCH.Clearnet due to regulatory changes.

london stock exchange

According to sources familiar with the transaction, the London Stock Exchange Group Plc (LON:LSE) reduced its offer to purchase LCH.Clearnet by 30 percent to increase its financial cushion against risks of default.

Last March, the London Stock Exchange Group Plc (LON:LSE) initially offered to acquire 60 percent stake in LCH.Clearnet for approximately €463 million or €19 per share, plus €1 per share as a special dividend payable within five years.

Under the revised proposal, the London Stock Exchange Group Plc (LON:LSE) is offering to acquire the 60 percent stake in LCH.Clearnet for €13 per share in cash, plus €1 dividend per share. The total value of the transaction is approximately €320 million.


On the other hand, a related report from Dealbook cited that the London Stock Exchange’s revised offer for the clearinghouse was €14 per share on completion of the transaction and €1 euro per share in 2012. The additional €1 per share would replace the special dividend. The companies agreed to extend their discussion regarding the takeover until January 31 next year.

Last September, the clearinghouse stated that if the European Commission approves the new rules for European Securities and Markets Authority (ESMA) regarding capital reserves for clearinghouses in Europe, the company would need an additional €300 million to €375 million.

On 09 Mar, LSE unveiled a €19 cash offer plus €1 special dividend payable in five years. For 60%, LSE’s initial outlay would have been €463m or €488m in total. Under today’s revised terms, the initial outlay falls by 26% or €122m to €341m, or total consideration by
-25% to €366m. The size of reduction is less than the 30% that was detailed in the press on 19 Dec.

However, LSE’s total cost to purchase 60% of LCH rises to €546m from €488m back in Mar. This is because LSE assumes it will be provide 60% of a €300m capital call for LCH. This capital call is at the lower end of the range LCH’s management specified (€300m-€375m). so net net, the LCH purchase is likely to cost LSE ~€58m more vs Mar.

The FSA will now review this offer. An offer circular seems likely, to be sent out at the start of Feb. It then takes >15 days notice before a shareholder vote. Revised approvals are required from both LSE and LCH shareholders. LSE needs a simple majority, LCH shareholder approval > 60%.

Peter Lenardos, analyst at RBC Capital Markets estimated the clearinghouse needs approximately €220 million, and London Stock Exchange needs to fund 60 percent of that amount. Leonardos said, “We continue to believe that the LSE has sufficient capacity on its debt facilities to both acquire 60% of LCH.Clearnet and to fund its portion of the increased capital requirement.”

LSE is in effect asking for a €122m offer price reduction to contribute €180m of capital support for LCH. Thus, the lower offer price is a compromise. If LCH shareholders reject these terms they either face contributing the whole €300m-375m capital support for LCH or finding an alternative buyer. ICE/NYX’s proposed consolidation (21 Dec) potentially removes a competing interest in LCH and formalizes taking the LIFFE contract in-house.

The IntercontinentalExchange Inc (NYSE:ICE) agreed to acquire NYSE Euronext (NYSE:NYX) for $8.2 billion last week. The company aims to develop a trans-Atlantic trading giant that concentrates on derivatives.