Speculation abounds that the London Stock Exchange Group PLC is on the verge of making the biggest acquisition in its 213-year history with a potential deal to buy Russell Investments, allowing the LSE to gain a bigger U.S. foothold.
The LSE on May 20 announced it was in “exclusive discussions” with Northwestern Mutual Life Insurance Co. to acquire Russell. As Pensions & Investments went to press three days later, no further details had been revealed.
While spokesmen for the LSE declined to comment on any potential deal, the money management industry was buzzing with theories and views on what could be a $3 billion transaction.
The overwhelming conclusion is that the London-based powerhouse wants to ramp up its presence in the U.S. market, particularly when it comes to the index business. The LSE already owns index provider FTSE Group.
The deal would “mark (the LSE's) boldest push into the U.S., where Russell is best known for its equity benchmarks such as the Russell 2000,” James Hamilton, London-based analyst at Numis Securities Ltd., wrote in a note published May 20. “Should the LSE acquire the index businesses of Russell, it would plug the strategic gap (the U.S.) in the FTSE portfolio.”
According to its website, Russell's U.S indexes have $5.2 trillion of assets benchmarked to them.
One big question is what the LSE would do with Russell's $259.7 billion manager-of-managers business.
“LSE has emphasized the intellectual-property basis, infrastructure and risk management aspects of its businesses, and the strategic fit of asset management in this model is unclear,” said Mark Thomas, London-based analyst at Edison Investment Research Ltd.
“I would expect that LSE would be looking to sell on the asset management side.”
Numis' Mr. Hamilton said analysts “do not see the strategic logic of purchasing the asset management business of Russell and would need to be convinced.”