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There is a package from Old St. Nick under the London Stock Exchange’s (LSE:LSE) Christmas tree, and it’s exactly what the LSE asked for. Some assembly is required, so it will be another month (31 January 2013) until it can be used. There is one small catch. If the LSE doesn’t like the present, or if the LSE is a bad boy, the present could be withdraw.
The present is LCH Clearnet (LSE:50MM). The LSE has agreed to pay €15 per share for a majority stake in the clearing house located in London, for a total price of €366 million, or the equivalent of £300 million.
Clearnet “provides clearing services for all order book trades in stocks, ETFs and ETCs on the LSE across SETS, SETSqx and AIM securities.” Clearing houses provide a level of confidence in trading of share by guaranteeing each party against default. Of course, there is a fee for that service, but one well spent.
The LSE had approached Clearnet earlier in the year at €19 per share plus future €1 per share dividend. The discounted price is not a Christmas Eve special, but rather an anticipation of the probably increase in collateralization of clearing houses cash deposited in financial institutions. If this proposal is adopted by the European Securities and Markets Authority, and it is considered likely that it will be, Clearnet would be obligated to raise some €300 million plus. Following consummation of the deal, the responsibility for raising the additional collateral would fall squarely upon the percentage of stake in the company.
Xavier Rolet, CEO of the LSE will find the present under the tree most enjoyable. It’s a one of a kind present, and both the NASDAQ OMX Group and the NYSE Euronext had asked for the same gift this year. Owning the majority stake in Clearnet allows the LSE to diversify as the equity market becomes more and more competitive.
The LSE share price closed at 1096.00 on a shortened Christmas Eve trading day, up 3.00 pence, and a 3-year high. In a world that does not tend to sleep in heavenly peace, politically or economically, the LSE board members will sleep tonight with visions of sugar plums dancing in their heads, the sound of reindeer hooves on the the roof, and the blessing of Santa saying, “Merry Christmas to the LSE and to all a good night.”
