The London Stock Exchange Group has agreed to sell the owner of Milan stock exchange to rival Euronext for €4.3bn, in a gambit to secure the EU’s regulatory approval of its $27bn acquisition of data and trading group Refinitiv.
The sale of Borsa Italiana to Euronext would also transform the owner of six stock exchanges around Europe into the biggest venue in the EU for listings and share trading.
The deal marks the latest in a round of mergers and acquisitions sweeping through global exchanges, which are consolidating to keep pace with the rapid expansion of their main bank and fund manager customers.
The LSE’s deal for Refinitiv, which was announced in July 2019, would transform it 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 LSE said on Friday that a divestment of Borsa Italiana or its sovereign debt trading venue MTS would be a probable condition for clearance by the European Commission’s competition watchdog.
A sale “will contribute significantly to addressing the EU’s competition concerns”, said David Schwimmer, the LSE’s chief executive.
The sale of Borsa Italiana is contingent on the EU approving the Refinitiv deal, and Brussels is due to make a ruling by mid-December. Shares in the LSE rose 0.2 per cent in early trading.
For Euronext, adding Borsa Italiana would expand its position as one of the most important owners of market infrastructure in Europe, adding to its exchanges in Paris, Amsterdam and Dublin among others.
Stéphane Boujnah, chief executive of Euronext, called the deal “a turning point in our group’s history”.
It would be the first time Euronext had bought the key markets infrastructure of a G7 country and the third-largest economy in Europe, he said, adding that the deal “will create the backbone of the Capital Markets Union in Europe”.
If the deal goes ahead, companies with a collective market capitalisation of more than €4.4tn would be listed on Euronext, while its venues would be home to a quarter of Europe’s €30bn-a-day trading in equities.
It would also more than double the amount of assets it holds in custody on behalf of banks, from €2.2tn to €5.6tn. Italy would account for just over a third of its revenue. Shares in Euronext rose 0.6 per cent in early trading.
Euronext will issue €2.4bn in new equity to pay for the deal and raise €1.8bn of new debt. Two Italian investors, Intesa Sanpaolo and state-owned investor Cassa Depositi e Prestiti, will also provide €700m in new equity, to become shareholders in Euronext. CDP will take a 7.3 per cent stake.
The sale of Borsa Italiana and MTS, which the LSE acquired for €1.6bn in 2007, has proved politically sensitive in Italy, where the government regards them as key national assets. Alongside the main stock exchange and MTS, Borsa Italiana owns a clearing and a settlement house.
As part of the terms of the deal, regulatory oversight of Borsa Italiana will remain in Italy and an Italian will chair the group.
Fabrizio Palermo, chief executive of CDP, said: “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.”
The two stock exchange providers began exclusive discussions last month after the LSE chose to engage with Euronext’s offer ahead of rival bids from Germany’s Deutsche Börse and Switzerland’s SIX Group.
The transaction is expected to be completed in the first half of 2021, before which LSE hopes to wrap up the Refinitiv deal.