LSE shares surge on historic $2.7 billio US index deal

Thursday 26 June 2014 15.32
London Stock Exchange makes the largest acquisition in its history
London Stock Exchange makes the largest acquisition in its history

The London Stock Exchange today unveiled the largest acquisition in its history, snapping up US group Frank Russell for $2.7 billion.

The deal will boost its position in the world's largest financial services market and sent its shares surging. 

Europe's oldest independent bourse said it would fund the long-awaited acquisition of the index provider and asset manager, which analysts have described as strategically sound, with a $1.6 billion rights issue and debt. 

It said the deal, which catapults it into third position in the booming market for exchange traded funds (ETFs) behind global market leaders S&P Dow Jones and MSCI would boost earnings in the first full year. 

The acquisition, which requires approval from regulators and shareholders, would also create a powerful index compiler with around $9.2 trillion of benchmarked assets. 

"With this acquisition, we are strongly positioned for the changing dynamics in the global indices market with a best in class offering, which we believe will help deliver outstanding returns for our shareholders," said LSE Chief Executive Xavier Rolet. 

Analysts welcomed a deal that gives the London bourse a market share of around 13% in the booming ETF market - passive and low-cost funds that provide an alternative to active fund management.

The LSE, which said in May it was in exclusive talks with Russell's owners Northwestern Mutual about a possible purchase, said the enlarged company would yield annual cost savings of $78m and boost annual revenues by $30m by year three. 

Annual revenues would rise by almost $50m by year five, it said. 

The bourse said it was reviewing the position of Russell's investment management business, which has $256 billion in assets under management, but declined to comment on the options for a business analysts say does not provide an obvious fit.

Under the terms of the deal, Russell's chief executive Len Brennan will join the executive committee of LSE.

The rights issue - the LSE's first ever - is expected to be launched in September following shareholder approval of the acquisition.

Northwestern Mutual began exploring a Russell sale in January after deciding it was no longer a core part of its business. Reuters reported in April that Canadian Imperial Bank of Commerce, MSCI and several private equity houses were considering bids.