LONDON (Reuters) - London Stock Exchange (LSE.L) head Xavier Rolet has won the backing of LCH.Clearnet’s board for his planned 1 billion euro ($1.3 billion) takeover of Europe’s largest independent clearing house, a source familiar with the situation said.
The board, which is made up of LCH.Clearnet’s largest clients, on Monday chose the LSE’s 21 euro-a-share bid for 51 percent of LCH over a rival offer from data firm Markit, which offered 15 euros per share for the entire business.
“There was a board meeting at LCH yesterday and they have proposed to move forward with the LSE,” said a source close to the talks.
The deal still needs to be signed off by LCH.Clearnet’s 98 shareholders, but the board support is a coup for Rolet as he looks to put a failed bid for Canada’s TMX Group (X.TO) behind him.
“This is a positive move for the LSE, it will be good to see them follow the same strategy they implemented with Turquoise and work closely with their clients,” said Simmy Grewal, an analyst with research house Aite Group.
The exchange bought 51 percent of European trading platform Turquoise in February last year, with the remainder held by the its main customers -- an arrangement credited with helping Turquoise grow since then.
The LSE wants control of LCH.Clearnet, which acts as the main clearing house for the British exchange, to bring it into line with European rivals like Deutsche Boerse (DB1Gn.DE), which
own and draw valuable income from their clearing providers.
The acquisition of LCH.Clearnet, which owns over-the-counter (OTC) swap service Swapclear, would also position the LSE to tap regulatory shake-ups in the United States and Europe designed to force the vast OTC markets to use clearing houses.
But some bankers have questioned whether Rolet is overpaying for LCH, given it is a not-for-profit entity and its profitability is uncertain.
Richard Perrott, an analyst at Berenberg bank, said the deal made strategic sense for the LSE, but added: “From a purely financial point of view, it is harder to judge because it is not immediately clear what is the economic value in Swapclear for example.”
Clearing houses, such as LCH.Clearnet and Deutsche Boerse’s Eurex Clearing, sit between trading counterparties ensuring that customers are not left out of pocket in the event of a default, such as Lehman Brothers in 2008.
The LSE and LCH.Clearnet declined to comment.
Editing by Douwe Miedema and David Holmes