What could a Refinitiv deal do for London Stock Exchange shares?

Could a move into market data send the London Stock Exchange Group plc (LON: LSE) share price rocketing?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the risk of stating the obvious, a stock exchange is a place that facilities the buying and selling of shares. It makes its money primarily through listing fees and trade commissions. This was generally the case for the London Stock Exchange Group (LSE: LSE), until it confirmed at the weekend that it was in negotiations for a potential purchase of market data provider Refinitiv.

Despite a $27bn price tag, LSE shares ended the day about 15% higher on Monday – the largest one-day increase they have seen in more than a decade – as investors took the news with the most positive of attitudes.

Market data

Owned by Blackrock, Refinitiv is primarily a market data and trading platform company, known for its Eikon terminals, spun-off from Thomson Reuters last year in a deal that at the time valued the company at $20bn. If the acquisition by the LSE goes through, it would not simply represent a mild move into the market data realm, but in fact, instantly make it a major player.

While Bloomberg is by far the dominant name – its terminals on just about every desk of every major financial institution around the world – the Eikon platform still holds a 22% market share (Bloomberg holds a 33% market share).

The acquisition also comes following long-standing attempts by the company to diversify over the past few years. These were hindered notably when it saw a potential merger with German exchange Deutsche Börse scuppered by European regulators because of competition concerns. In this latest deal, these same issues may resurface.

Pros and cons

Monday’s share price rally is an obvious indicator of how the market is taking the news, but I think this may be a little bit too optimistic a little too soon. Such a large acquisition in this field is likely to bring about some objections by a number of competitors, as well as spurring a number of potential antitrust and regulatory problems.

What’s more, the LSE will be taking on Refinitiv’s considerable debts as part of the purchase. Given the exchange’s strong share performance in the past year, it would not be a surprise if the company tapped the market through a new share issue to fund the deal.

All that said, there are a lot of positives to take away. Its core business as a stock exchange has been coming under increasing pressure, both as technology and competition reduce margins for equity trading, and as worries surrounding Brexit have been keeping much of its future, and that of the financial industry as a whole, uncertain. In this environment, diversification is a boon.

In a broader sense, the company is also in a prime position to take advantage of combining the two companies with integration between its data, trading and clearing platforms perhaps meaning the total becomes more than the sum of its parts.

With a dividend yield below the 1% mark, and a current P/E of 47, LSE shares are not perhaps offering investors the most appealing opportunity at the moment. But if and when this acquisition becomes finalised, I think the share price itself may still have room to climb.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »