London Stock Exchange (>> London Stock Exchange Group Plc) has agreed a revised 328 million euro ($426 million) cash offer to buy a majority stake in LCH Clearnet, in a long-delayed deal aimed at beefing up the group's lucrative clearing and risk management business.
Under the recommended offer, the LSE said it wants to acquire up to a further 55.5 percent in LCH, which acts as a middle man in financial trades and guarantees to complete deals if one of the parties cannot.
Regulators called for a shake-up in the amount of capital firms such as LCH must stockpile against their trading book shortly after LSE's original offer, triggering a year of renegotiating the deal.
The new offer is conditional upon the execution of a 320 million euro capital raising, which the LSE has pledged to support with a further 185 million euros of fresh investment.
LCH investors who consent to the deal will receive 15 euros per share, an offer that values the firm's issued share capital at 633 million euros.
"We will promote greater innovation, choice and competition in the risk management industry, especially in listed derivatives. This ...will build upon the successes we have already had with our existing equity and fixed income trading partnerships," LSE Chief Executive Xavier Rolet said.
LSE will then own up to 57.8 percent of the firm, including its current 2.3 percent stake, leaving other LCH shareholders with at most 42.2 percent.
LSE's maximum total investment in LCH following the fundraising will be 536 million euros, including a deferred consideration of up to 23 million euros payable in 2017.
LSE's long pursuit of LCH reflects its ambition to expand post-trade services for clients as trading in listed and 'over the counter' (OTC) derivatives thrives against a backdrop of dwindling stock market volumes.
Volumes in global exchange traded derivatives measured by the number of contracts grew by around 12 percent between 2000 and 2012, while volumes in global OTC derivatives measured in terms of notional value grew by around 17 percent.
Besides helping LSE to diversify its core equities trading business, the deal is also expected to help LCH develop a new listed fixed income derivatives platform, LSE said.
LCH shareholders representing almost 73 percent of the firm's issued share capital have already indicated support for the transaction, including core investor NASDAQ (>> NASDAQ OMX Group, Inc.).
The New York-based exchange operator has agreed to increase its LCH stake to 5 percent following the capital raising and its Chief Executive Bob Greifeld will join the board of the enlarged group thereafter.
"For any central counter-party the active involvement of the largest number of potential customers is critical so it is a real positive that NASDAQ is taking a greater involvement," Mark Thomas, analyst at Edison Investment Research, said in a note.
LSE shares were up 0.5 percent at 1,403 pence by 3.55 a.m. ET, versus a 0.25 percent rise in the FTSE 100 <.FTSE>. ($1 = 0.7692 euros)
(Reporting by Sinead Cruise; editing by Tommy Wilkes and Jason Neely)