LSE set to sell French clearing arm to Euronext
Cash deal worth about €510m could smooth UK group’s path to Deutsche Börse merger
The London Stock Exchange Group is expected to announce the sale of its French clearing arm to rival Euronext within days in a cash deal worth about €510m.
The UK group hopes that the sale will smooth the path for its merger with rival Deutsche Börse.
The LSE and Euronext had hoped to unveil a deal before Christmas but a late disagreement over terms meant the announcement was put on hold. That has now been resolved and a formal statement is expected to come this week, two people briefed on the talks said.
The LSE and Euronext declined to comment.
LSE offered to sell LCH SA, the Paris-based subsidiary formerly known as Clearnet, three months ago to allay concerns from Brussels antitrust officials that its tie-up with Deutsche Börse could curb competition in the European fixed income markets.
That deal faces a critical three-month evaluation period as EU watchdogs examine its likely impact on clearing competition in Europe. Last week, the European Commission pushed back its deadline for a decision on the LSE-Deutsche Börse deal to March 13.
Clearing houses are at the forefront of moves by global regulators to bolster markets after the financial crisis. They stand between parties in a trade, managing the risk to the market if one party defaults on payment.
Ten days ago, LSE and Deutsche Börse received a so-called “statement of objections” from the competition regulators, which laid out concerns about the clearing of trades in derivatives and fixed income markets.
In an interview with the Financial Times last week, Carsten Kengeter, chief executive of Deutsche Börse, said of the French LCH disposal: “We believe that the vast majority of the concerns that are coming out of Brussels will, in fact, be addressed [by the sale].”
A sale would resolve the majority of problems that the European Commission has with a merger between LSE and Deutsche Börse, leaving only issues related to derivatives clearing.
The LSE wants to keep the UK arm of LCH, which clears interest rate swaps, and link it with Deutsche Börse’s Eurex, which clears futures.
Mr Kengeter said that the two exchanges would respond formally to the antitrust concerns by mid-January. “That response, I think, will be crucial to seeking the approval, or obtaining the approval,” he said.
A purchase would be Euronext’s largest deal since it was spun off from Intercontinental Exchange and became an independent company again in 2014.
LCH SA clears credit default swaps, derivatives, equities and repo trades, a crucial market for secured short-term funding for banks.
It made a profit of €36.2m from an operating income of €122.5m in the year to December 2015. Euronext outpaced interest from US exchanges duo Nasdaq and CME Group for LCH SA, according to the people briefed on the talks.
Last month, RBC Capital Markets said that Euronext needed a catalyst, either from a deal or higher trading volumes, to boost its flagging share price, which has dropped 15 per cent this year.