LSE shares surge on historic $2.7 billio US index dealThursday 26 June 2014 15.32
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.