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LSE Said to Cut LCH.Clearnet Bid by 30% on Capital Rules

LSE Chief Executive Officer Xavier Rolet
LSE Chief Executive Officer Xavier Rolet is trying to diversify the exchange’s business away from traditional equities trading after losing market share to new entrants. Photographer: Simon Dawson/Bloomberg

Dec. 19 (Bloomberg) -- London Stock Exchange Group Plc cut its bid for a majority stake in LCH.Clearnet Group Ltd. by 30 percent after European regulators forced the clearinghouse to boost capital, three people with knowledge of the matter said. LSE shares rose to a 4 1/2-year high.

Under the revised terms LSE presented to LCH.Clearnet, shareholders would get 13 euros a share in cash and a 1 euro special dividend, according to the people, who asked not to be identified as the discussions are private. Europe’s oldest independent bourse had originally offered 19 euros in cash plus the 1 euro dividend for as much as 60 percent of LCH.Clearnet, valuing the clearinghouse at 813 million euros ($1.08 billion).

The European Securities and Markets Authority has proposed that 95 percent of a clearinghouse’s cash deposits placed with financial institutions must be collateralized with debt instruments meeting certain conditions of liquidity and credit risk, LSE said in September. If adopted, the rules would force London-based LCH.Clearnet to increase capital by 300 million euros to 375 million euros.

LCH.Clearnet continues to negotiate with LSE about the purchase price and last week rejected an offer of less than 14 euros a share, the people said. The companies are still discussing the implications of the European regulation and possible changes to takeover terms, LSE said in a statement today in response to the Bloomberg News story.

Shares Climb

LSE rallied 2.9 percent to 1,106 pence at the close of trading in London, the highest price since May 2008.

“This would be very positive for the transaction and LSE shareholders,” Peter Lenardos, exchange analyst at RBC Capital Markets in London, wrote in a report today. “While we have previously believed a cut in the purchase price was warranted and likely, we are surprised and pleased that the size of the cut is so substantial.” He rates LSE outperform, the equivalent of buy.

LCH.Clearnet’s SwapClear service began processing interest-rate contracts between banks in 1999. The company attracted interest from Nasdaq OMX Group Inc. and NYSE Euronext before it accepted the LSE bid. LCH.Clearnet shareholders, who include banks and brokers that use its services, will retain at least 40 percent ownership after the transaction.

Rolet Strategy

LSE Chief Executive Officer Xavier Rolet is trying to diversify the exchange’s business away from traditional equities trading after losing market share to new entrants. LSE was forced to scrap a bid for TMX Group Inc., the operator of the Toronto stock exchange, last year after failing to win support from the Canadian company’s shareholders.

Other exchanges have also been hit by the proposed European rules. NYSE Euronext, owner of the biggest U.S., French and Dutch stock exchanges, in November fell the most in a year after saying it needs to almost double the amount of capital set aside for its European clearinghouse.

Clearinghouses operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default. They have become more attractive as regulators seek more central processing of derivatives transactions.

To contact the reporter on this story: Nandini Sukumar in London at

To contact the editor responsible for this story: Andrew Rummer at

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