By Noor Zainab Hussain and Huw Jones
LONDON (Reuters) - London Stock Exchange has agreed to buy financial information provider Refinitiv in a $27 billion deal aimed at offering trading across regions and currencies and establishing the British company as a rival to Bloomberg.
The deal, which was confirmed on Thursday and is subject to regulatory and shareholder approval, will expand LSE's trading business beyond shares and derivatives into currencies and make it a major distributor as well as creator of market data.
"This transaction is a defining moment for LSE in terms of its strategic importance," LSE Chairman Don Robert said of the purchase, which comes ten months after a consortium led by U.S. private equity group Blackstone (NYSE:BX) completed a leveraged buyout of Refinitiv from Thomson Reuters.
"Increasingly our customers want to trade across different regions and currencies," LSE Chief Executive David Schwimmer told journalists of the rationale for the move.
Shareholders welcomed confirmation of the deal, which was initially revealed last week, and LSE's stock rose more than 7.9% to a record high of 7,152 pence after its first-half total income rose 8% rise to 1.1 billion pounds ($1.33 billion).
The sale of Refinitiv marks a rapid turnaround for Blackstone, which a person familiar with the deal said would double the value of its investment.
Ultimately Refinitiv shareholders will own a stake of around 37% in LSE but have less than 30% of total voting rights. LSE will issue around $14.5 billion of new shares to fund the deal and take on Refinitiv's net debt of $12.5 billion.
Robert will chair the enlarged company and Schwimmer will be CEO, while Refinitiv CEO David Craig will join LSE's executive committee and continue to run that business.
The deal's origins date back to 2013 when Craig - then running Thomson Reuters' Financial and Risk division - was introduced to Blackstone's head of private equity Joseph Baratta at the Chelsea Flower Show, three sources told Reuters.
(GRAPHIC - Britain's LSE seals $27 bln Refinitiv deal to create data giant: https://tmsnrt.rs/2yqyIdX)
'RARE AND COMPELLING'
EU competition regulators blocked LSE's attempt to merge with rival Deutsche Boerse (DE:DB1Gn), the exchanges' fifth attempt to combine, in 2017 and sources close to the Refinitiv deal expect full competition investigations, which could take a year to 18 months..
But LSE executives said they were confident the "rare and compelling" deal would make it past the regulators.
"We have two very complementary businesses, they are more complementary than they are overlapping," Schwimmer said.
Asset managers have told regulators that exchanges are charging too much for data on share prices and LSE stressed that it would retain its commitment to "open access" after the deal.
"The issue is largely a U.S. issue in terms of concern around market data pricing," Schwimmer said, adding that LSE had no plans for any divestments.
While Schwimmer said it was too early to comment on possible job losses, LSE Chief Financial Officer David Warren said the areas where there were overlaps that could yield cost savings include property, technology and corporate services.
LSE expects the deal to complete by the second half of 2020 and will pay Refinitiv a break fee of 198.3 million pounds if the merger is blocked by regulators.
(GRAPHIC - LSE's spend on acquisitions in the decade: https://tmsnrt.rs/2ymw7lg)
BREXIT SCENARIOS
The deal comes amid uncertainty over Britain's exit from the European Union and Blackstone and Thomson Reuters run the risk that LSE shares could fall if Britain leaves without a deal.
New Prime Minister Boris Johnson has vowed to take Britain out of the bloc by October 31 with or without a deal, sending the pound to is lowest level in more than two years.
LSE has already reorganized some of its EU-exposed businesses, opening an Amsterdam hub for its Pan-European stock platform Turquoise, and shifted European government bond trading to the Milan arm of its MTS platform.
"We are prepared for whatever may come from the various Brexit scenarios," Schwimmer said, adding that a "global footprint" was driving the deal rather than Brexit.
(GRAPHIC - LSE to buy Refinitiv for $27 bln: https://tmsnrt.rs/2ymvLuU)
NEWS DEAL
Blackstone's consortium, which includes Canada Pension Plan Investment Board and Singaporean sovereign wealth fund GIC Special Investments Pte Ltd, holds a 55% stake in Refinitiv.
Thomson Reuters, which owns the remainder and is the parent company of Reuters, will hold 15% of LSE, it said in a separate statement.
The Canadian company added that the agreement signed at the time Refinitiv was sold to the Blackstone-consortium for Reuters to supply news to Refinitiv for 30 years would remain in place.
Advisers for LSE include CEO Schwimmer's former employer Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Robey Warshaw, and its corporate broker Barclays (LON:BARC) while Refinitiv was advised by Evercore, Canson Capital and Jefferies.
Thomson Reuters was advised by Guggenheim Securities.
(GRAPHIC - LSE to buy Refinitiv for $27 bln: https://tmsnrt.rs/2yhaDWS)