LSE Jumps More Than 8% On $614M LCH.Clearnet Deal

Shares of London Stock Exchange Group PLC (LON: LSE) soared more than 8 percent Friday morning, after the namesake bourse operator agreed to buy a majority stake in LCH.Clearnet, one of Europe's largest clearing houses, for €463 million ($614.6 million).

Following the deal, LSE will become the majority owner of LCH.Clearnet, holding up to 60 percent of its issued share capital. The move is designed to strengthen LSE's post-trade business.

"Strategically, structurally and financially this is a highly persuasive transaction," the chairman of the London Stock Exchange, Chris Gibson-Smith said in a statement Friday. "Together, we have secured the enlarged group's long term role in the operation of international capital markets."

"The LSE is moving into clearing and the deal is transformational for LSE," said Steve Grob, director of Group Strategy at Fidessa Group Plc, a British Trading systems developer.

The deal, which still must receive regulatory approval, includes offering LCH.Clearnet shareholders €20 per share acquired -- with €19 in cash plus €1 from a special dividend payable by LCH.Clearnet in five years.

The transaction, expected to close by the fourth quarter of this year, comes after months of talks and values LCH. Clearnet at €813 million.

For LSE, the deal is expected to immediately lift earnings and return on invested capital is expected to exceed the company's current cost of capital in the first year.

The LSE has been aggressively trying to get foreign companies to list in London, which is underscored by the acquisitions it made over the past two and a half years.

The LSE absorbed trading platform Turquoise which was set up by nine of the world's largest banks, as well as Sri Lankan technology provider MillenniumIT.

Last summer, LSE failed to acquire Canada's TMX Group Inc., owner of the Toronto Stock Exchange, but quickly moved on to a new target, the LCH.Clearnet.

"What you are seeing in today's announcement is a recognition that the idea of trying to do cross-boarder, international trading platforms looks pretty hard," Grob said.

In April 2011, Austrilia blocked Singapore Exchange Ltd.'s proposed takeover of main stock market operator ASX Ltd., saying the deal raised the risk of the country losing control of its clearing and settlement systems.

In February this year, the European Union vetoed a proposed deal to tie-up the NYSE Euronext and Deutsche Börse , ending a yearlong merger push.

"The reason for that is they fall foul of nationalistic politics or regulatory concerns of competition," he added, "Those things that scattered the LSE-TMX deal, the ASX-SGX deal, and of course the NYSE Euronext and Deutsche Börse deal."

After jumping 10.3 percent and peaking at 990.5 pence a share in a broadly flat London market, LSE's stocks edged slightly lower and are currently trading at 963 pence a share.