Paris-based bourse owner, Euronext N.V. or Euronext announced that it has entered into an agreement with London Stock Exchange (LSE) for acquiring Borsa Italiana (Borsa) based in Milan, Italy’s only stock exchange. The companies said on Friday, October 9, 2020, the acquisition deal was worth 4.3 billion euros ($5.1 billion), and the transaction of the deal was agreed in cash.
LSE, which bought the Italian company in 2007, had been in exclusive talks with Euronext last month after the Paris bourse owner saw off competition from Deutsche Boerse and Swiss rival SIX. LSE has taken steps for putting Borsa up for sale in an attempt to alleviate the European Commission’s concerns about its control over the European bond market. As Reuters explained, the deal proves a significant moment for LSE since it brings the stock exchange a step closer to winning approval for its $27 billion purchase of data provider Refinitiv, which is 45% owned by Thomson Reuters.
The French company described that the deal was a key strategic move that would help the company in the major expansion of its network of European trading platforms. The deal, however, was politically sensitive as the sale of Borsa, which owns MTS that handles trading of Italy’s 2.1 trillion euro ($2.5 trillion) government bond market.
Euronext’s Acquisition of Borsa
The Paris-based company, which has its stock exchange operation in Paris, Amsterdam, Brussels, and Dublin among others, said that the deal would bulk up its equity operations in the European trading market. Upon the completion of the deal, the combined group would have operating exchanges with more than 1,800 listed companies and an aggregate market value of around 4.4 trillion euros.
Euronext CEO Stephane Boujnah said in a statement, “Euronext will significantly diversify its revenue mix and its geographical footprint by welcoming the market infrastructure of Italy, a G7 country and the third-largest economy in Europe,” reflecting the potential development of the company after the deal.
Following the deal, Jeffries analysts explained that the deal values Borsa at 16.7 times 2019 EBITDA earnings before synergies versus the 15.5 times average for recent market infrastructure mergers and acquisitions “which we think looks reasonable as exchanges of this size and quality rarely come to market”. However, Euronext plans to issue 1.8 billion euros in debt and raise 2.4 billion euros in new equity to fund the transaction of the deal.
Political Sensitive Deal
Since the deal triggers political involvement, Euronext has teamed up with state agency Cassa Depositi e Prestiti (CDP) and Italy’s biggest bank Intesa SanPaolo would subscribe to 700 million euros of Euronext’s equity issue to secure the Italian government’s backing. Meanwhile, Borsa’s bond trading platform MTS would also give Euronext its first foray into fixed-income trading.
Meanwhile, the European Commission is likely to approve LSE’s Refinitiv deal as the deal completes the provision of selling of all or part of Borsa. LSE Chief Executive David Schwimmer said in a statement, “We believe the sale of the Borsa Italiana group will contribute significantly to addressing the EU’s competition concerns,”
Goldman Sachs, Morgan Stanley, and Barclays were among the advisors to LSE while Lazard advised CDP, and on other hand, Mediobanca and JP Morgan helped Euronext. Meanwhile, Euronext said the transaction was expected to be immediately accretive to its adjusted earnings per share before synergies.
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