Euronext hits reset button for Allfunds' M&A prospects after dropping bid

Allfunds

01/03/2023 17:22

* 
      Investors applaud Euronext withdrawal; Allfunds' shares
plummet
    

        * 
      Deutsche Boerse, private equity cited as possible suitors 
    

  
    By Mathieu Rosemain, Huw Jones and Pablo Mayo Cerqueiro
       PARIS/LONDON, March 1 (Reuters) - Exchange operator
Euronext  ENX.PA  has hit the reset button for Allfunds'
 ALLFG.AS  takeover prospects after giving up on buying the fund
distribution company, fuelling speculation that other suitors
may step in.
    Euronext last week had made an indicative cash-and-shares
offer for Allfunds of 5.5 billion euros ($5.86 billion), sending
its own shares down in a sign of shareholder skepticism.    
    On Tuesday, Euronext withdrew its indicative offer, and
Allfunds said its board had considered the terms inadequate and
discussions were terminated.
    While not a game-changing deal, Allfunds would have helped
Euronext catch up with rivals like London Stock Exchange Group
 LSEG.L , ICE  ICE.N  and others, which have been diversifying
away from traditional trading activities into areas like data
and analytics.
    Allfunds would have added a new layer to Euronext's
business, helping fund management companies to sell funds across
borders and navigate complex data rules.
    After the merger talks ended, Euronext said the company made
its decision after conducting due diligence.
    An Allfunds spokesperson said: "Other than a discussion
about the company's publicly disclosed financials, Euronext
received no other access to due diligence."
    Euronext's withdrawal leaves the field clear for others to
swoop in, a source close to the initial talks between Allfunds
and Euronext said.
    Potential bidders, including buyout funds, are now
considering throwing their hat in the ring, a second source
said, adding that private equity would be able to raise money
for a takeover.
    Analysts have also tipped Germany's Deutsche Boerse
 DB1Gn.DE  as a potential bidder for Allfunds, with a view to
bolstering its existing fund services operation.
    "By virtue of doing nothing, we believe Deutsche Boerse
comes out on top from this episode," analysts at Jefferies said.
A deal "could yet come back for Allfunds, but there is no
obvious time imperative."
    A Deutsche Boerse spokeswoman declined to comment.
    
    RARE REVERSAL
    Euronext had so far focused on snapping up national
exchanges, most recently Borsa Italiana, to become a
pan-European stock exchange, with bourses in Amsterdam,
Brussels, Dublin, Lisbon, Oslo and Paris.
    There are few European exchanges left for Euronext to buy,
and further acquisitions could run up against competition
constraints.
    ING analysts considered Euronext's indicative offer as too
low. "Clearly, so did the Allfunds board and majority
shareholders," the analysts said.
    Euronext's sudden change of mind is an unusual move for CEO
Stephane Boujnah, although Euronext does have strict financial
conditions on takeovers, meaning it cannot pursue a deal at any
price. 
    Any takeover must have a return on capital goal above the
weighted average cost of capital after three to five years, as
per Euronext's own investment criteria.
    Euronext is also building up activities in stock and
derivatives clearing, and needs to avoid the distraction that a
contested and expensive takeover bid would bring.

($1 = 0.9389 euros)

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 (Reporting by Mathieu Rosemain, Huw Jones, Pablo Mayo Cerqueiro
and Chiara Elisei; Editing by Jane Merriman)
 ((Mathieu.Rosemain@thomsonreuters.com; +33 1 8098 1239; Reuters
Messaging: mathieu.rosemain.thomsonreuters.com@reuters.net;
Twitter: https://twitter.com/MathieuRosemain))