London Stock Exchange calms some nerves over the Refinitiv deal


Today’s results from London Stock Exchange Group PLC (LSE:LSEG) take some of the pressure off management as it struggles to justify its GBP20bn acquisition of capital markets data provider Refinitiv.

The shares are up 5.8% at 7,904p today but that’s a long way south of the 9.488p they were trading at on 4 March, the day before the group released its full-year results and more pertinently opened up a can of worms by revealing the expenditure that would be required to get Refinitiv’s technology platform up to speed.

READ London Stock Exchange tanks as Refinitiv costs spook investors

Much of the Refinitiv business is the data part of the old Reuters terminals business. Before brash American newcomer, Bloomberg crashed the market and ate a large part of Reuters’ lunch, the Reuters terminals dominated dealing rooms.

Although Reuters remained a big player in dealing rooms its position was seen as vulnerable.

In the first decade of the current millennium, the Thomson Organisation (as it was then) had ambitions to get a foothold in dealing rooms with a product it was developing known as Thomson One.

It was explained to Thomson employees that this product would not be targeting Bloomberg customers because the Bloomberg product was too good. No, the target was the Reuters product, seen as clunky, unreliable and outdated, albeit with an enviable database.

A year or two later, Thomson bought Reuters.

Go figure …

Culture clash

Thomson had its own problems integrating its new acquisition, as there was a definite culture clash.

The Thomson employees regarded the Reuters people as overly bureaucratic (“like the bloody civil service”) while the Reuters people probably regarded the Thomson staff as “shoot first, ask questions later” cowboys.

To give one anecdotal example, when there was a meeting to determine a unified way of treating capital issues and corporate actions and their effect on historical equity prices, the Datastream division of Thomson sent along one representative and Reuters sent along closer to two-dozen.

Initially, Thomson put Reuters people in charge of all the key functions of the financial information business but one by one they were quietly sloughed off.

As for the LSE, the Refinitiv acquisition has quadrupled the headcount so there are bound to be cultural issues. While the LSE managers may be in charge, the rank and file LSE employees might feel swamped by the massive influx of new colleagues. Ultimately, these personnel issues can be overcome by training and a judicious bit of what is euphemistically referred to in management circles as “right-sizing”. The technological issues, however, might prove a tougher nut to crack.

While the technological problems at Refinitiv were well known in the industry, the scale of them still seems to have taken the London Stock Exchange by surprise.

Happily for LSE shareholders, the company is making “good progress” on the integration of Refinitiv with GBP77mln of run-rate cost synergies realised in the first half of the year.

The full-year guidance for run-rate cost synergy delivery has been increased to GBP125mln from GBP88mln. The group has previously said it expects to incur a cost to achieve synergies of GBP730mln – GBP550mln to achieve the cost synergies and GBP180mln to achieve the revenue synergies.

Achieving cost synergies is one thing but bringing the Reuters Eikon product up to snuff is another.

The hard slog begins

The LSE’s capital expenditure (capex) in the first half of the year was GBP318mln, of which GBP45mln was characterised as integration and separation capex.

Operating net debt increased to GBP7,095mln at the end of June from GBP1,425mln at the end of 2020, predominantly due to the debt taken on as part of the Refinitiv acquisition but at least the group has taken on heavy debt in a period of low-interest rates.

“Both Standard & Poor’s and Moody’s maintained their respective LSEG credit ratings at A and A3 through the period and, based on support for the strategic rationale for the Refinitiv transaction and reference to the group’s deleveraging plans (including the impact of the sale of the Borsa Italiana group), Standard & Poor’s maintained its outlook at negative, and Moody’s improved its outlook from negative to stable,” the company said in today’s statement.

It’s early days, of course – the acquisition only completed in January after a prelude that seemed to last longer than The Mousetrap’s run in London’s West End – but the worry is that the “transformational” acquisition might transform the company into something of an underperformer while it knocks the acquisition into shape.

Fortunately, other parts of the LSE’s business are ticking along nicely, helped by the most active period for new issues on the exchange since 2014.

The group said it saw revenue growth across all of its divisions.

“We are executing on a detailed integration and transformation plan to create a simplified and scalable business, and we are ahead of plan. We are confident in meeting our financial targets,” the group said.


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