LSE sells clearing
business to Euronext in bid to win merger approval
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[January 03, 2017]
By Andreas Kröner
Stock Exchange Group has agreed to sell its French clearing business to
Euronext for 510 million euros ($534 million), as it seeks to win
regulatory approval for its proposed merger with Deutsche Boerse.
The European Commission has expressed antitrust concerns about the $28
billion merger and the impact on the clearing of derivatives contracts
in particular. The Commission, in a document on the issue, has not made
clear if the sale of the French clearing business, LCH Clearnet SA,
would be enough to dispel its concerns, two sources told Reuters.
One person directly involved in the merger process said he did not
believe the sale alone would address the Commission’s concerns.
"I have doubts that this is enough," he said. He suggested that LSE
might also opt to sell Borsa Italiana, operator of the Milan stock
exchange, to help address antitrust concerns, although a second source
familiar with the process said that a sale of Borsa Italiana was not
being discussed at the moment.
An LSE spokeswoman said the company could not comment beyond its
statement on the sale on Tuesday. Deutsche Boerse representatives
declined to comment.
LSE Group and LCH Group Limited said in a joint statement that they had
agreed on the terms of Euronext's all-cash offer, after announcing last
month that they were in exclusive talks with Euronext on a sale.
LSE and Deutsche Boerse plan to formally submit the Clearnet SA sale as
a remedy to the European Commission's concerns in the next few days
sources told Reuters.
A major hurdle to LSE's merger with Deutsche Boerse is how antitrust
regulators define the derivatives market.
Deutsche Boerse is hoping that the European Commission will treat
over-the-counter (OTC) derivatives contracts and on-exchange traded
derivatives as two separate markets, sticking to a market definition the
Commission confirmed back in 2012.
Deutsche Boerse's Eurex is mainly active in exchange-traded derivatives,
while the LSE's LCH.Clearnet is active in the OTC business.
But Deutsche Boerse has acknowledged that the European Commission may
change its mind, prompting the merger partners to make concessions such
as selling LCH Clearnet SA to avoid the LSE-Deutsche Boerse combination
being regarded as a dominant player.
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A worker shelters from the rain under a Union Flag umbrella as he
passes the London Stock Exchange in London, Britain, October 1,
2008. REUTERS/Toby Melville/File Photo
"It seems the market definition is changing," Deutsche Boerse Chief
Financial Officer Gregor Pottmeyer said about the European Commission's
antittrust deliberations in November.
For pan-European exchange operator Euronext, buying Clearnet will give
it control of a platform for which it provides much of the revenue and
will make it less reliant on a competitor's clearing services.
Clearing is becoming a much more lucrative business as global reforms
introduced after the 2007-09 financial crisis mean banks must clear the
bulk of their derivatives trades to make them safer and more
"If the DB-LSE-merger is completed, then Euronext will be strengthened
at the core of the euro zone capital market with this transaction,"
Euronext CEO Stephane Boujnah told CNBC, adding that Euronext is also
considering other takeovers. "The reason why we are confident we can
capture those opportunities is because we have significant firing power
in our balance sheet, in particular because of our extremely low level
of debt.", Boujnah said.
Euronext said it expected the deal to add to its earnings in double
digits from the first full year, before costs pegged at 40 million
euros. It forecast cost savings of 13 million euros before taxes.
Euronext shares were up 2.6 percent at 1006 GMT at 40 euros on Tuesday,
while LSE Group and Deutsche Boerse shares were virtually flat at 2,901
pence and 79.41 euros respectively.
The Commission is due to decide on the merger on March 13, after
extending its review deadline for the second time.
It stated its objections to the merger in December, but outlined fewer
concerns than in its first letter sent to both exchange operators in
(Additional reporting by Vidya L Nathan in Bengaluru, editing by Susan
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