LSE's $15 Billion Refinitiv Deal Is Cleared by Key European Regulator -- Update

BY Dow Jones & Company, Inc. | CORPORATE | 01/13/21 09:50 AM EST By By Ben Dummett and Valentina Pop

Europe's antitrust watchdog on Wednesday approved London Stock Exchange Group PLC's (LDNXF) $15 billion deal to acquire Refinitiv Holdings Ltd. with conditions, removing a key hurdle in the company's bid to challenge Bloomberg LP, S&P Global Inc. and other industry heavyweights offering financial data.

The decision by the European Commission ends a monthslong probe into the risks of the deal. The probe centered on concerns the deal could give the LSE undue market power over trading and clearing government bonds, interest rate derivatives, and the sale of financial data such as stock- and bond-price quotes.

LSE is betting on the Refinitiv deal, first announced in 2019, will help it create a financial data juggernaut. It has been diversifying its operations away from stock trading and other traditional exchange businesses toward clearing and higher-margin data services that feed the rise of quantitative trading and passive investing.

Still, the largest exchange company in Europe by market value agreed to several concessions to win regulatory approval for the tie-up. London has long been Europe's biggest financial center, anchored in part by the LSE. The concessions -- in place for 10 years -- center on the LSE granting equal access to its venue data to all existing and future competitors, continuing clearing services in line with EU regulations despite Brexit and the sale Borsa Italiana Group. The concessions also include a dispute resolution system for third parties to go to if the LSE doesn't comply with its commitments.

Following Britain's breakoff from the European Union, the bloc is under pressure to bolster the capabilities of the continent's financial institutions, some analysts say. The remedies for the LSE deal highlight that pressure: It potentially undercuts the exchange's ability to generate additional revenue from the proposed deal in areas such as clearing and trading government bonds and derivatives, and cross-selling data and other products between its customers and those of Refinitiv.

The concessions also come as competition in the data industry is stiffening, representing another challenge to the LSE. In November, S&P Global Inc. agreed to acquire IHS Markit Ltd. for about $44 billion, bringing together two of the largest providers of data to Wall Street.

A LSE spokeswoman wasn't immediately available for comment. The exchange operator has said that it expects to close the deal by the end of March.

The LSE didn't comment beyond confirming the EC's decision. It expects to close the deal by the end of March following receipt of "a small number of merger control and financial regulatory authority approvals."

"Today, we can approve the proposed acquisition," said European Commission Vice-President Margrethe Vestager, in charge of competition, "because LSEG offered commitments that will ensure that the markets will remain open and competitive."

The merger as it was initially planned would have brought together the LSE's heavy influence trading of government bonds in Italy, one of Europe's largest debt markets, through its ownership of Borsa Italiana with Refinitiv's majority- owned bond trading platform, Tradeweb. But to appease the commission, the U.K.-based exchange operator agreed in October to sell the Milan-based exchange to pan-European rival Euronext NV for 4.33 billion euros, equivalent to $5.27 billion, mitigating the commission's concerns over the LSE gaining excessive market share and pricing power trading European government bonds.

The regulator had also indicated the deal, without remedies, risked deterring competition for trading and clearing interest rate swaps because of the high barriers to entry that would-be competitors face and their customers' reluctance to switch trading venues or clearinghouses to settle trades.

The LSE is a dominant player in the settling of interest-rate swaps traded off an exchange -- the largest category of derivatives globally, according to the commission. Refinitiv gives it access to its Tradeweb trading platform for interest-rate derivatives. That could have allowed the combined entity to require traders that use the LSE's clearing facility to also trade those derivatives on Refinitiv's platform to boost business.

To address this type of potential anticompetitive behavior, the commission is preventing the LSE from using its leverage clearing swaps to force customers to also trade swaps over its platform. That could represent a loss in revenue for the potential benefit of rival derivative trading and clearing platforms in continental Europe.

Still, the concession is consistent with the LSE's long time stance of allowing traders to clear and trade derivatives on different venues as a way of attracting business by offering customers greater flexibility.

Similarly, the commission is requiring the London exchange to adopt safeguards to ensure that the combined group doesn't offer degraded stock quotes and indexes to existing and future competitors.

Write to Ben Dummett at ben.dummett@wsj.com and Valentina Pop at valentina.pop@wsj.com


  (END) Dow Jones Newswires
  01-13-21 0950ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

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