The London Stock Exchange Group (LSEG) has terminated the sale of its French-based clearing house, Clearnet.SA, to Euronext following the failure of its planned merger with Deutsche Boerse.
Following the decision by the European Commission to block the merger, the LSEG stated: “As a consequence of the termination of the Merger, the proposed sale of LCH.SA (also known as Clearnet) by LSEG and LCH Group to Euronext N.V. will also terminate in accordance with its terms.”
Euronext had initially agreed to acquire Clearnet in January this year for €510 million, as the LSE aimed to ease anti-competition regulations.
However, the European Commission deemed that the sale of Clearnet was not a viable remedy, and that it had also had to sell its Italian bond platform, MTS, for the merger to go ahead.
For Euronext, it comes as a blow to its plans to expand its post-trade services to new asset classes in continental Europe.
“In the absence of obtaining an agreement, Euronext is fully committed to securing the best long-term solution for its post-trade activities, in the interests of clients and shareholders,” Stephane Boujnah, CEO, Euronext, earlier stated.
However, analysts from UBS and ING believe the sale of Clearnet makes commercial sense for both Euronext and the LSE.
According to a recent analyst note published by UBS on 28 March, an acquisition of Clearnet would diversify Euronext’s revenue base, with post-trade revenues set to account for 32% of Euronext’s total revenues. A deal for Clearnet would also reduce Euronext’s reliance on cash equity trading commissions, the research note stated.
In addition, UBS believes the LSEG have an incentive to sell Clearnet to Euronext, due to a potential loss in revenues “if Euronext decides not to renew its cash equity agreement with Clearnet and instead choose EuroCCP as its primary cash equity clearinghouse.”
Euronext acquired a 20% stake in EuroCCP for €14 million at the end of last year.
Another analyst note by ING, also stated: “There is a chance that LSE, pressured by management of LCH Clearnet and its minority shareholders waives the condition precedent (CP) of the DB/LSE merger closing and disposes the French clearing house.”