London Stock Exchange pays $2.7bn for US company Frank Russell
Friday 27 June 2014
Shares in the London Stock Exchange shot to the top of the FTSE 100 leader board yesterday as it scored the largest acquisition in its 214-year history.
It is paying $2.7bn (£1.6bn) for the US company Frank Russell, one of the world's biggest providers of financial indices and a fund manager.
The deal will be financed by a £942m rights issue that the LSE said it will launch in September after shareholders have approved the takeover.
Russell indices will sit alongside the FTSE business, which has been under the full control of the LSE since 2011 when it bought out its 50 per cent partner, the publishing group Pearson, for £450m. This will create the largest indices business in the world, ahead of MSCI and S&P Dow Jones.
"The acquisition of Russell is another significant milestone for LSE," its chief executive, Xavier Rolet, said. "It sits squarely with our diversification strategy, builds on one of our core strengths in intellectual property and provides another key driver of growth by growing our presence in the US, the largest global financial services market. Russell's index-management business is a strong strategic fit with FTSE."
Russell indices are used by investment funds running $5.2 trillion of assets while the FTSE's are the benchmarks for $4 trillion of funds.
The LSE said that it would review Russell's fund-management arm, which controls $256bn, "to determine its positioning and fit within the group". Analysts expect that the LSE will sell the division, partly because it could create conflicts of interest with many of its own largest clients.
The LSE said it would run the fund manager on a standalone basis and do everything it could to retain clients and staff.
Mr Rolet said: "This is a very high-quality business with a track record of innovation and a world-class client and employee base, and we are committed to preserving the qualities that have attracted these clients and employees to the firm."
Russell's chief executive, Len Brennan, will join the LSE's executive board once the deal is completed.
Barclays, which is the lead bank on the deal, with Goldman Sachs acting for Russell's owners, will in effect underwrite the rights issue.
LSE shares shot up 114p, or 6 per cent, to 1,984p. The group said it expects to achieve annual cost savings of £46m by the end of 2017 and extra revenues of £28m by 2019. It said the acquisition would improve earnings in the first year.
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