LSE in Talks to Sell Borsa Italiana to Close Refinitiv Deal

(Bloomberg) -- London Stock Exchange Group Plc has started discussions to sell part or potentially all of its Borsa Italiana unit to satisfy European regulators examining its blockbuster deal for Refinitiv.

LSE has commenced exploratory discussions which may result in a sale of MTS SpA, which operates fixed income trading platforms, or potentially the whole Italian group, according to a statement Friday. There’s no certainty that any transaction will go ahead, the group noted. It expects to close the Refinitiv deal by early next year.

“We want to evaluate whether there are potential benefits of keeping the two together” Chief Executive Officer David Schwimmer said in a media call after the company reported earnings. “We are continuing our dialogue with the European Commission, it’s constructive.”

The $27 billion Refinitiv deal requires clearance from dozens of regulators across the world. The European Union suspended its previous Oct. 27 deadline to review the transaction, saying it needed more time to gather third-party feedback. The bloc is concerned about LSE’s potential market share in electronic trading for European government bonds. MTS would come under the same roof as bond venue Tradeweb Markets if the Refinitiv deal goes through.

Italian Operations

The LSE has owned Borsa Italiana since 2007. The Italian operations generated 14% of all LSE revenue last year, according to Bloomberg data and gives the U.K. group a foothold in the EU after Brexit. The Milan-based exchange has already attracted interest from rival European exchanges and could draw bids of about 3 billion euros ($3.6 billion) to 3.5 billion euros, people familiar with the matter said in June.

Italy’s government is already facing calls to become involved in any transaction. Lawmaker Davide Zanichelli of the Five Star Movement, the biggest party in the ruling coalition, urged the administration to prepare “a competitive offer to bring Borsa Italiana back within the country’s borders and avert the possibility of dividing up the group.”

Read more: Italian Exchange Seen as Next Target in Battle of the Bourses

Describing Borsa Italiana as “a strategic asset” Zanichelli, a member of the lower house’s finance commission, said in a statement the government should draw up a proposal, which could involve state-backed lender Cassa Depositi e Prestiti SpA together with a pool of Italian banks and financial institutions.

Antitrust Investigation

LSE also said that the U.S. Department of Justice closed its antitrust investigation of the transaction without remedies.

Schwimmer allayed concerns that U.K. regulators could hold up the deal if the review isn’t concluded before the U.K. leaves the European Union.

“There’s no Brexit impact if the transaction slips into the early part of next year,” Schwimmer said. “We have started our review with the EU and they have jurisdiction over this transaction.”

The stock exchange operator’s share were up 1.7% at 9:52 a.m. in London after it reported total revenue of 523 million pounds for the second quarter. Rival exchange operator Euronext reported second-quarter revenue of 210.7 million euros ($248 million), up 33% from a year earlier while Deutsche Boerse AG saw net revenue climb 7% to 778 million euros from a year ago.

Trading Hours

The LSE chief also signaled that a reduction to its stock trading hours is unlikely after Euronext said this week that its exchanges wouldn’t cut their opening hours.

“It’s most sensible if there was concerted action across exchanges given most participants have a single desk for Europe trading,” Schwimmer said. “We will take that into account as we continue our consultations.”

The vast majority of LSE employees are working remotely with a higher number in offices where countries have the virus under control, Schwimmer said. A phased return to the group’s headquarters, which occupies a prime position in the shadow of London’s St Paul’s Cathedral, will see about 30% of employees return in September, he said.

While geopolitical tensions between the U.K. and China continue Schwimmer said that LSE’s Shanghai-London stock link is receiving interest from U.K. companies considering whether to list and raise funds in Shanghai. So far no companies have dual-listed in Shanghai and just two have taken advantage of a London listing.

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