London Stock Exchange’s Big Bet Is Profitable but Risky; European Stocks Slip as Pound Extends Decline

  • LSE stock jumped 15% on Monday. Early Saturday, the company, which owns big clearing and index units as well as its eponymous capital-markets business, confirmed a Financial Times report that it was in talks to buy Refinitiv.
  • LSE would pay $27 billion, including $12.2 billion of net debt that it would assume. Refinitiv’s current owners, Blackstone and its financial partners and Thomson Reuters , would get a 37% share of LSE.
  • LSE’s existing shareholders also would get the benefit of those cost savings—one reason why the shares jumped Monday. The other reason is that the company, by assuming Refinitiv’s private-equity debt load, would leverage up, boosting earnings per share.
  • Yet LSE also would assume massive operational risk in trying to swallow a larger entity. The U.K. company made EBITDA of $1.4 billion last year, less than the $1.6 billion made by Refinitiv. LSE has integrated data acquisitions successfully before, but nothing on this scale.

• European stocks largely fell after an upbeat session in Asia, while the British pound continued to drop as Brexit fears took center stage.
• The U.K.’s FTSE 100 stock index, which tends to benefit from a weaker pound, was the region’s only riser. The Stoxx Europe 600 fell by 0.7%, with losses led by its banks, autos and parts and construction sectors.
• The wider downward shift in European equities reflected geopolitical uncertainty and weak economic data. Prolonged weakness in the manufacturing sector, particularly in the eurozone’s largest economy, Germany, weighed on confidence as U.S.-China trade tensions have dampened appetite for European exports.
• “If I was to trade [currencies] right now I’d be thinking about that asymmetry. The crunch point, when [Boris Johnson] realizes he needs to tone down the language [and seek compromise], will come when parliament’s back from holiday,” said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management