LONDON The London Stock Exchange (LSE.L) has cut its offer for LCH.Clearnet by almost a third to 312 million euros ($413.7 million), to reflect rising capital requirements, sources familiar with the matter said on Wednesday.
Sources said the British stock market has made a revised offer of about 13 euros a share, down about 6 euros on the deal it agreed with LCH management and shareholders in April.
The deal is important to the LSE because it takes the British exchange further into clearing, a potentially lucrative area, with regulators looking to mandate the use of clearing houses in the wake of the collapse of Lehman Brothers.
The LSE said on Wednesday it was in talks with LCH over the "potential changes to the commercial terms of the transaction" but declined to comment further. LCH also declined to comment.
The reduced offer needs to be accepted by the LCH board and then it will have to go back before LCH shareholders, who are not guaranteed to accept the lower bid, according to analysts.
LCH.Clearnet shareholders include nearly 100 of the world's largest trading banks and two exchanges, the London Metal Exchange and NYSE Euronext NYX.N.
"It'd be positive if it could secure a price reduction on this scale," said Richard Perrott, an analyst at Berenberg Bank.
The LSE was forced to renegotiate the deal to reflect proposals by European regulators to introduce higher capital charges on clearing houses, such as LCH, next year.
Analysts expect LCH's capital shortfall will be less than early estimates and should come in at about 220 million euros.
The LSE would only need to pay 60 percent of that, but that would still leave it on the hook for at least 100 million euros, which its shareholders will want factored into the terms of the LCH takeover.
The reduction in offer price to 13 euros a share means the LSE's offer for the 60 percent of LCH shares has fallen from about 460 million euros to about 312 million euros.
"While we have previously believed a cut in the purchase price was warranted and likely, we are surprised - and pleased - that the size of the cut is so substantial," said Peter Lenardos, an analyst at RBC Capital Markets (RY.TO).
Clearing houses sit between trading firms and ensure trades of securities such as stocks and bonds are completed, holding cash to refund firms left out of pocket by a counterparty default.
They have taken on greater importance since the collapse of Lehman Brothers four years ago and regulators want to force more trading through such vehicles to ensure smoothly functioning markets even at times of stress.
(Editing by Louise Heavens)
(This story was corrected to fix the value of offer to 312 million euros in first and eleventh paragraphs)