London Stock Exchange Group agreed to snap up Refinitiv in a $27 billion blockbuster deal, betting on a future dominated by data as the three-century-old exchange seeks to extend its global reach.
Shares in LSE rose as much as 8% after the exchange operator unveiled details of the transaction for the data and trading provider, which CEO David Schwimmer said fulfilled his ambitions to expand the group further into analytics and the buy-side industry.
The transformational deal promises to create global scale and growth in fast-growing markets such as Asia, Mr. Schwimmer said on a media call. It will also make Refinitiv's owners, including Blackstone Group, some of the biggest LSE shareholders with a combined 37% stake.
Yet, it comes with risks: The firm will take on a $13.5 billion bridge loan to cover Refinitiv's debts, which would lead to leverage above targets in the short term. LSE also raised the possibility of asset sales to meet worldwide regulatory approval, a process that could take over a year. The U.K.'s potential hard Brexit in October could create further antitrust headwinds.
The transaction is expected to complete in the second half of 2020, according to a statement Thursday, although the deal allows for the process to extend to 31 May, 2021.
"Data capabilities will define the success of financial market infrastructure business in the future as our customers to seek to create value through unique insight and analysis and operate businesses in the most efficient technology enabled way," Mr. Schwimmer said on the call.
The plan will need regulatory approval in multiple countries, Mr. Schwimmer said, adding there were "no plans or intentions around divestiture." The LSE said in a statement it might be required to make divestments, which could be material. Refinitiv will get a break fee of 198.3 million pounds if clearances are not obtained.
The purchase marks the first major move by Mr. Schwimmer, who joined the 300-year-old bourse from Goldman Sachs Group a year ago and has been riding a 30% surge in the stock price from his first day through July 26, when news of the discussions broke. Until recently, he had made some strategic but low-key acquisitions, such as increasing the exchange's stake in clearing business LCH Group Holdings.
Refinitiv serves over 40,000 institutions in 190 countries including buy and sell-side firms, governments and corporations. Its trading venues include a stake in the recently listed Tradeweb and the FXAll and Matching platforms, with average daily trading volume of over $400 billion in currencies and $500 billion in fixed income. Mr. Schwimmer said he expects Tradeweb to keep its listing following the deal.
Refinitiv's products also include the Eikon terminal and the trading-execution system Redi. Bloomberg LP, the parent of Bloomberg News, competes with Refinitiv to provide financial news, data and information.
LSE said the deal is expected to produce £350 million ($424 million) in annual savings within five years. CFO David Warren said there were overlaps in technology, property and corporate functions, with some job cuts possible, although he declined to give more detail. Refinitiv has 19,000 staff while LSE has about 4,500.
Blackstone, Canada Pension Plan Investment Board and GIC, Singapore's sovereign wealth fund, acquired 55% of Refinitiv — as the former financial and risk unit of Thomson Reuters was renamed — in a transaction last year that valued the business at $20 billion.
These shareholders will be entitled to nominate three board members, as long as they hold at least 25% of the enlarged firm. They are committed to holding their stock for at least two years.