LSE seals 4.33b euro Borsa sale to Euronext, Italian banks

London

LONDON Stock Exchange Group (LSE) agreed to sell Borsa Italiana to Euronext and two Italian lenders for more than 4.33 billion euros (S$6.9 billion), in a deal that will create the largest listing venue in Europe.

LSE, which is selling Borsa Italiana to get approval from the European Union for its US$27 billion Refinitiv deal, announced the transaction in a statement on Friday after exclusive talks between the parties started last month.

The London exchange will sell its entire shareholding for 4.3 billion euros in cash plus an unspecified additional amount reflecting the unit's performance through to the deal's completion.

Euronext shares fell 3.6 per cent in morning trading, and LSE shares were up 0.7 per cent. Bloomberg News first reported the agreement on Thursday.

The deal removes a major hurdle to LSE's blockbuster tie-up with Refinitiv, which is facing regulatory scrutiny, while the addition of the Milan bourse will transform Euronext's footprint giving it a quarter of all equity trading in Europe, including listings for 28 of the Euro Stoxx 50 companies.

The transaction, which will only take place if European authorities bless LSE's Refinitiv deal, also gives Paris-listed Euronext a clearinghouse for the first time as well as a securities depository, stock exchange and bond platform.

"We believe the sale of the Borsa Italiana group will contribute significantly to addressing the EU's competition concerns," said David Schwimmer, LSE's chief executive officer.

The transaction is expected to close in the first half of next year.

Borsa Italiana is seen as a strategic asset in Italy because of its ownership of MTS, a platform used to trade government bonds, and the Italian government has sought to engineer a deal for months.

Euronext, the owner of the Paris and Amsterdam exchanges, is bidding with Cassa Depositi e Prestiti (CDP), a state-backed lender, and Intesa Sanpaolo, Italy's biggest bank.

CDP will acquire a 7.3 per cent stake and Intesa about 1.3 per cent in Euronext.

"The acquisition of Borsa Italiana is a turning point in the history of Euronext," chief executive officer Stephane Boujnah said in a call with reporters.

"It marks the realisation of our ambition to build the leading pan-European market infrastructure and create the backbone of the European capital markets union."

Euronext will finance the deal through 1.8 billion euros of new debt and a 2.4 billion euro capital raise, including a 700 million euro private placement with CDP and Intesa SanPaolo, and a rights offer to existing shareholders.

Bloomberg News first reported about the deal completion Thursday.

LSE has cleared a major antitrust hurdle for its purchase of Refinitiv with its Euronext agreement (conditional on negotiations with the European Commission) to divest Borsa Italiana.

The valuation - 16.7 times its enterprise value to adjusted 2019 earnings before interest, taxes, depreciation and amortisation - is about the average for global exchanges; and given the Italian business' skew to cash trading and clearing, is a good price for LSE, according to Lento Tang, Bloomberg Intelligence's banking analyst.

Italian institutions will also have the right to name the new chairman of Euronext.

Their combined stake will be at the same level of French shareholders, Euronext's CEO said last month.

The deal is the second major transaction involving Italy's CDP announced this week, after Nexi agreed to buy SIA to create one of Europe's biggest payment providers. The state lender will be an anchor investor in the combined entity.

In recent months, Italy's government has been increasing its grip on the country's strategic assets using CDP, which is controlled by the Finance Ministry, to implement calls from Prime Minister Giuseppe Conte's coalition of the left-wing Democratic Party and the populist Five Star Movement to increasingly shift toward state aid and government intervention for strategic sectors.

Euronext's Mr Boujnah said synergies from the deal would mainly be extracted from moving Borsa Italiana to Euronext's technology platform rather than through job cuts.

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