London Stock Exchange Group (LSEG) has agreed to sell its entire shareholding in LSEG Italia, the parent company of Borsa Italiana, to a consortium of buyers led by pan-European stock exchange operator Euronext.
The deal is conditional on the European Commission’s approval of Refinitiv’s sale to LSEG.
The sale is conditional on LSEG’s acquisition of financial market data and infrastructure provider Refinitiv being given the green light by the EU.
Under the terms of the agreement, Euronext, Italian sovereign wealth fund CDP Equity, and Italian bank Intesa Sanpaolo will pay €4.33 billion (approx. £3.93bn) plus an unspecified amount based on cash generated by Borsa Italiana through the deal.
Borsa Italiana is set to play a key role in Euronext’s future becoming its largest single revenue contributor – the Italian exchange reported revenue of €464 million in 2019, roughly one-third of the total income under the combined group.
The transaction is expected to generate €60m pre-tax run-rate synergies by year three and will boost Euronext’s position in European cash equities, fixed income trading, and post-trade activities.
The impact on Euronext’s ETF capabilities is also significant with Milan added to a list of ETF markets which already includes Amsterdam, Brussels, Dublin, Lisbon, Oslo, and Paris.
Borsa Italiana is one of the largest ETF trading venues in Europe and its integration into Euronext’s federal model will widen the product offering and deepen the overall liquidity pool.
As of the end of July, Euronext reported an average daily trading volume of €334m from 1,276 ETFs listed across its six markets. In comparison, Borsa Italiana sees an average daily trading volume of €534m on its ‘ETFplus’ market which covers 1,081 ETFs as well as 215 additional ETCs/ETNs (data as of the end of September).
Stéphane Boujnah, CEO and Chairman of the Managing Board of Euronext, commented, “The acquisition of the Borsa Italiana group marks a significant achievement in Euronext’s ‘Let’s Grow Together 2022’ strategic plan and a turning point in our group’s history. Thanks to this transaction, Euronext will significantly diversify its revenue mix and its geographical footprint by welcoming the market infrastructure of Italy, a G7 country, and the third-largest economy in Europe.”
Raffaele Jerusalmi, CEO of Borsa Italiana, added, “We have enjoyed a long and successful relationship with LSEG which has invested in and developed our business over the last 12 years. We look forward to embarking on the next phase of our history, working in partnership with Euronext, CDP Equity, and Intesa Sanpaolo to further develop our business and to contribute to the development of European capital markets.”
Conditional on Refinitiv approval
LSEG’s motive for divesting Borsa Italiana is principally to clear the way for its acquisition of Refinitiv from its consortium of owners led by BlackStone and Thomson Reuters.
That deal, reportedly for $27bn, would expand LSEG’s Information Services division, a major earnings generator for the group, which includes index provider FTSE Russell. Information Services has become an increasingly important segment for LSEG in recent years as profit margins within traditional capital market operations have fallen due to intensifying competition.
The tie-up between LSEG and Refinitiv still needs to pass scrutiny by the European Commission, the EU’s antitrust regulator, which has expressed concerns that the deal could undermine competition in consolidated real-time data-feeds and desktop services.
Brussels seems particularly worried over LSEG’s potential dominance in the clearing of European fixed income trading due to the group’s ownership of Borsa Italiana’s MTS, Italy’s leading bond exchange. The divestment of Borsa Italiana is, therefore, expected to generate considerable goodwill with the European Commission ahead of its ruling on the Refinitiv deal, expected before 16 December.
David Schwimmer, CEO of LSEG, said, “We continue to make good progress on the highly attractive Refinitiv transaction and we are pleased to have reached this important milestone. We believe the sale of the Borsa Italiana group will contribute significantly to addressing the EU’s competition concerns. The Borsa Italiana group has played an important part in LSEG’s history. We are confident that it will continue to develop successfully and contribute to the Italian economy and to European capital markets under Euronext’s ownership.”