Morningstar | London Stock Exchange Acquires Minority Stake in Euroclear
Wide-moat rated London Stock Exchange announced today that it has purchased a minority stake in Euroclear, a Belgian-based provider of settlement, custody, and collateral management services. The exchange has agreed to pay EUR 278.5 million for a 4.92% stake in what is the largest International Central Securities Depository (ICSD) in Europe. Deutsche Boerse owns the second largest ICSD in Europe, Clearstream, with these two players dominating the settlement and custody landscape in that market. We view the move favorably and like that David Schwimmer, the exchange's new CEO, is not sitting back, staying active with deal making and strategic moves much like his predecessor Xavier Rolet. We are maintaining our fair value estimate of GBX 4,600 per share.Arguably, one of the last remaining gaps in its product capabilities was settlement and custody. While the exchange does have CSD in its Italian operations, Monte Titoli, these operations are more regional and not on the same scale as the operations of the two largest European ICSD's. We've long viewed Clearstream as a strength of the exchange's rival, exchange Deutsche Boerse. Given that Euroclear has a mutual ownership structure, much like many of the other market infrastructure firms, we would not expect the exchange to buy out all of Euroclear. That said, the 4.92% stake is large enough to give it a position on Euroclear's board and should provide opportunities for significant influence as well as some profit sharing. Overall, we think the move is a smart one strategically, as it not only fills a previous gap for the London Stock Exchange within its post-trade capabilities but better establishes it in the European Union (which is significant given the remaining uncertainty surrounding Brexit) and provides the firm with some influence over a key collateral provider.
London Stock Exchange Group is a global markets infrastructure business based in the United Kingdom. Co's operating segments include: Information Services, which provides a range of information and data products including indexes and benchmarks; Post Trade Services LCH, which provides clearing services through which counterparty risk is mitigated across multiple asset classes; Capital Markets, provides access to capital for domestic and international businesses and electronic platforms for secondary market trading of equities, bonds and derivatives; and Group Technology, which provides secure technologies to customers that require performance at high levels of availability and throughput.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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