(Closes shares in final paragraph.)
Dec. 12 (Bloomberg) -- London Stock Exchange Group Plc agreed to buy the 50 percent of FTSE International Ltd. it doesn’t already own from Pearson Plc for 450 million pounds ($702 million) in cash as it seeks to expand in derivatives.
The acquisition of FTSE International, which publishes the U.K.’s benchmark FTSE 100 Index and more than 200,000 other gauges, is expected to be completed in the first quarter of 2012, the two companies said in separate statements today.
LSE trails NYSE Euronext and Deutsche Boerse AG in derivatives and is trying to expand its offering of futures and options contracts on companies and indexes across Europe. Owning an index operator makes it easier to provide derivatives based on the gauges.
“This is a high-growth business,” David Lester, LSE’s director of information services, said in an interview today. “FTSE significantly diversifies LSE’s business and creates new growth opportunities for LSE’s listed derivatives trading business, a key strategic priority for the group.”
In 2001, LSE failed to buy Liffe, a London-based derivatives exchange that lists futures and options on the FTSE 100 and other European gauges. Liffe is now owned by NYSE Euronext, which is struggling to convince antitrust regulators that its proposed merger with Deutsche Boerse won’t harm competition in derivatives.
LSE is also seeking to acquire LCH.Clearnet Group Ltd., the London-based clearinghouse that processes LSE’s trades and dominates the market for interest-rate swaps.
Pearson has been pruning its business by moving focus away from data generation. The company sold its 62 percent stake in Interactive Data Corp., a U.S.-based data provider, last year for $3.4 billion.
“We view this as a very good price for Pearson and is over 100 million pounds more than we had valued the stake,” Lorna Tilbian, an analyst at Numis, wrote in a note to investors today. “Pearson has a very strong recent track record in M&A.” She rates Pearson “hold.” FTSE International contributed about 18 million euros ($24 million) to Pearson’s after-tax earnings in 2011 and its sale will cut 2012 per-share earnings by 2 pence to 83 pence, she said.
LSE shares fell 40 pence, or 4.9 percent, to close at 780 pence in London today, as Standard & Poor’s also began reviewing the company’s credit rating for possible downgrade. Pearson dropped 16 pence, or 1.4 percent to 1,128 pence.
--With assistance from Amy Thomson in London. Editors: Andrew Rummer, Srinivasan Sivabalan
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