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ANALYSIS-LSE's bid for Refinitiv spotlights quest for data, globality

Sun 28th July, 2019 6:00am
By Huw Jones and Elizabeth Dilts
    LONDON/NEW YORK, July 28 (Reuters) - London Stock Exchange
Group Plc's  LSE.L  planned purchase of Refinitiv in a $27
billion deal is the latest sign that exchange operators are
focusing more on data products to increase revenue, while also
trying to expand their global reach.
    For more than a decade, exchange operators around the globe
have been trying to consolidate. But proposed tie-ups between
major competitors have failed several times in the past because
of resistance from government authorities who either had
antitrust concerns or did not want a foreign company running
what was often seen as a national symbol.
    At the same time, profits from the traditional business of
facilitating transactions like stock trades have fallen, pushing
the industry to look for related businesses for growth, analysts
and industry sources said. 
    Because revenue from data products has been rising and is
expected to continue doing so, exchanges are now hungry for
these products as well as selling services based off that data
and information, such as indexes and fee-based services they can
offer once a trade has cleared.
    "Data is the lifeblood of financial markets today now more
than ever - and that data is getting more and more valuable,"
said Kevin McPartland, head of market structure and technology
research at Greenwich Associates.
    If completed, LSE's deal to buy Refinitiv, a global
financial data analytics provider, from buyout firm Blackstone
Group Inc  BX.N  and Thomson Reuters Corp  TRI.TO  will fit that
mold, the analysts said.*:nL4N24R418
    "It just makes them more competitive and more appealing as a
partner for customers because it brings together a lot more than
what LSE had before," said Spencer Mindlin, an Aite Group
analyst who focuses on capital markets trading technology.
    LSE and Thomson Reuters declined to comment for this
article, referring to their earlier statements that confirmed
they were in discussions for a deal. Blackstone did not have an
immediate comment.
    In its statement, LSE said a deal would help expand its data
and distribution capabilities, diversify trading capabilities
and increase global footprint, allowing it to benefit from
"future data- and technology-enabled growth opportunities."
    LSE said it expects to cut more than 350 million pounds in
annual costs for five years after the deal closes, and add to
its earnings per share in the first full year after completion.
    Refinitiv is based in London and reaches more than 40,000
clients, who are largely traders and investment professionals,
in more than 190 countries.
    Patrick Young, an industry consultant at Exchange Invest,
said LSE's deal for Refinitiv would be "a major pivot away from
the EU" for the exchange operator.
    Just last month, London Stock Exchange Chief Executive David
Schwimmer said it was difficult even to consider big mergers
because of political opposition.*:nL8N23C363 
    The company failed several times to merge with Germany's
Deutsche Boerse AG  .GDAXI  and previously failed to acquire
Canada's main exchange, TSX Inc.
    Those collapsed deals mirror proposed cross-border marriages
that didn't work, including Singapore Exchange Ltd's  SGXL.SI 
attempt to buy Australia's ASX Ltd  ASX.AX  in 2011.
    Major exchanges, including Intercontinental Exchange Inc
 ICE.N , Nasdaq Inc  NDAQ.O  and Deutsche Boerse, have been more
successful in inking smaller deals that diversify their
businesses away from basic stock trading.
    The most basic services that exchanges provide are
consolidated market feeds. In the United States, that generates
about $1.4 billion in annual revenue for the industry, according
to Greenwich Associates. Exchanges generate billions more in
data revenue beyond that for related products and services.
    Investors and banks that pay for the information have been
pushing back on pricing. Some investment firms have called on
the European Union's markets watchdog ESMA to review market data
fees, saying they keep on rising despite falling costs of
computing and data storage. 
    At London Stock Exchange, former chief executive Xavier
Rolet began to diversify revenue after taking the helm in 2009.
    Today, information services account for nearly 40% of the
group's 2.14 billion pounds ($2.65 billion) in annual revenues,
according to its 2018 annual report. That portion is followed by
post-trade services at just over one-third.
    Traditional capital markets business like stock trading and
initial public offerings accounted for just 19% of revenue last
year, compared with around 46% a decade ago.
($1 = 0.8078 pounds)

 (Additional reporting by Michelle Price in Washington D.C.,
Noor Zainab Hussain in Bangalore and Pamela Barbaglia in London;
Editing by Lauren LaCapra, Paritosh Bansal and Daniel Wallis)
 ((; (646) 223-5063; Reuters
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