LSE Agrees To Sell Italian Stock Exchange To Euronext For $5.1 Billion In Deal Involving Many Players

Euronext, Europe’s largest stock exchange operator, will get even bigger after it agreed to purchase Borsa Italiana (the operator of the Milan Stock Exchange) from the London Stock Exchange, or LSE, for 4.3 billion euros ($5.1 billion).

The deal is complex and involves many stakeholders across the continent and U.K.

LSE entered into exclusive talks with Euronext last month on the deal after two other major European stock exchange operators -- Germany’s Deutsche Boerse and Switzerland’s SIX -- were muscled out of the picture.

LSE’s proposed disposition of Borsa Italiana is linked to its own plan to purchase data provider Refinitiv for $27 billion. LSE is still seeking regulatory approval from the EU for that transaction. (Refinitv is 55%-owned by Blackstone Group and 45%-owned by Thomson Reuters)

LSE’s acquisition of Refinitiv would transform LSE into a “capital markets infrastructure and information powerhouse, controlling widely-used services in share, bond and swaps trading as well as clearing, data and indices,” the Financial Times reported.

LSE put Borsa Italiana on the selling block after the European Commission's competition watchdog raised concerns about LSE’s control over the European bond market.

LSE initially purchased Borsa Italiana in 2007 for 1.6 billion euros ($1.9 billion) – meaning it will make a huge profit on its sale to Euronext.

Upon gaining the Milan exchange, Euronext will operate exchanges with more than 1,800 listed companies and an aggregate market value of about 4.4 trillion euros ($5.2 trillion).

Borsa Italiana’s bond trading platform MTS will also allow Euronext to enter fixed income trading for the first time. MTS oversees the trading of Italy’s 2.1 trillion euro ($2.5 trillion) government bond market.

The deal will also sharply increase the amount of assets Euronext holds in custody on behalf of banks -- from 2.2 trillion euros ($2.6 trillion) to 5.6 trillion euros ($6.6 trillion). In order to fund the acquisition, Euronext plans to issue 1.8 billion euros ($2.1 billion) in debt and raise 2.4 billion euros ($2.8 billion) in new equity.

Some analysts are concerned by the lofty costs to be incurred by Euronext.

“Overall, higher synergies coming at a higher price and a bigger rights issue than we expected,” Credit Suisse analysts said in a note.

The proposed sale of MTS also raised some criticism in the Italian government. In order to gain Rome’s support for the deal, Euronext partnered with state-owned agency Cassa Depositi e Prestiti, or CDP, and Italy's biggest bank Intesa SanPaolo – these entities will subscribe to 700 million euros ($826 million) of Euronext's equity issue. CDP will have a 7.3% stake in Euronext at closing.

In addition, as part of the deal, regulatory oversight of Borsa Italiana will remain in Italy and an Italian person will chair the exchange.

“Borsa Italiana and its subsidiaries will become central elements within the Euronext system in which Italy will be the most significant market, becoming a leading player in continental Europe,” said Fabrizio Palermo, chief executive of C

The proposed sale is conditioned upon the European Commission’s assurance that it will only approve LSE’s acquisition of Refinitiv if all or part of Borsa Italiana is sold. The EU is expected to make a decision on the Refinitiv deal in mid-December.