London Stock Exchange Group PLC aims to quickly pay down the leverage taken on to fund its $27 billion purchase of data and financial analytics provider Refinitiv, according to LSE CEO David Schwimmer.
The executive also said the deal ticks the boxes for three strategic goals so was an easy decision, but warned that there would be some job losses. The deal was not driven by Brexit, he said.
Refinitiv, which supplies its Eikon desktop terminal to global markets customers and also owns currency trading platform FXall and a majority stake in bond-trading platform Tradeweb, operates in 190 countries and has 400,000 end users. The combined group will have revenues of £6 billion and the transaction is expected to close in the second half of 2020.
The all-share deal will see LSE take on data firm Bloomberg Inc. worldwide.
'Highly cash generative'
Schwimmer said that the acquisition will be "highly cash generative" and that the merged company would remain headquartered in London and listed on the London stock market.
LSE will pay for the deal by issuing $14.5 billion in new shares and taking on $12.5 billion of existing debt. Schwimmer said the group would maintain its dividend policy.
"We feel good about our ability to take on leverage and pay down the leverage quickly," said Schwimmer.
He said LSE had been thinking about certain key goals in terms of strategy and that the deal ticked the boxes.
"We wanted to be more global, to diversify our capital markets business, and significantly expand our capacity in data and analytics," he said. "We can now execute on these three goals in one step, so that made it a very straightforward decision."
The deal will see Refinitiv's owners, private equity firm Blackstone Group Inc. — which owns 55% — and media group Thomson Reuters — which owns 45% — become LSE's biggest shareholders with 37% of the shares but just under 30% of the voting rights. Refinitiv's owners have agreed to be subject to a lock-up for the first two years following completion, with the exception of a few shares tradeable shortly after completion.
Blackstone only completed its own deal to acquire Refinitiv from Thomson Reuters in 2018 when the whole business was valued at $20 billion. Schwimmer indicated that the 35% increase in value was matched by LSE's stock price over the same period.
Cost savings, job cuts
Schwimmer will be CEO of the merged business, while LSE Chairman Don Robert and CFO David Warren will also remain in their posts at the combined group. David Craig will continue as CEO of Refinitiv.
The deal will result in annual run-rate cost savings in excess of £350 million by the end of year five after completion, with savings from overlaps in technology, property and corporate functions, Warren said. The combined business is also expected to see revenue compound annual growth rate of 5% to 7% over the first three years following completion and Warren said all savings had been verified by a third party.
Schwimmer also said there would be some lay-offs though he said it was too early to say how many and emphasized that the combined group aimed to make hirings in high-growth sectors.
He also said the deal, which will see the combined group increase its exposure to the North American market, had nothing to do with Brexit. He said the company was well prepared for the U.K. exiting the EU.
The combined group will probably face regulatory scrutiny, possibly from U.K., U.S. and EU regulators, but Schwimmer was confident the merged group was well positioned to face this.
"We have two very complimentary businesses here. They are more complimentary than they are overlapping. But I am not in a position to judge how they will come out," he said.