London Stock Exchange to raise £938m to fund US acquisition

The London Stock Exchange Group said today it would raise £938 million to part fund the acquisition of US indexes group Frank Russell.

LSE will offer 74,347,813 new shares at a price of 1,295 pence, a 30.1 percent discount to its August 21st closing price.

The new ordinary shares represent 27.3 per cent of the existing share capital and would be 21.4 per cent of the enlarged issued share capital, following the rights issue.

Europe’s oldest independent bourse unveiled plans to buy Frank Russell for $2.7 billion in June to move deeper into the US financial services market.

LSE said then it would help fund the purchase by issuing new stock. The deal would give LSE third place in the booming market for exchange traded funds (ETFs), low-cost funds that provide an alternative to active fund management, behind market leaders S&P Dow Jones and MSCI.

The rights issue has been fully underwritten by Barclays Bank, RBS Capital Markets, Deutsche Bank, JP Morgan Cazenove, Banca IMI, Banco Santander, HSBC and Mitsubishi UFJ Securities.

LSE will pay the remaining $1.1 billion for Frank Russell with its existing multi-currency bank debt facilities. They include a recently signed 600-million-pound multi-currency revolving credit facility which has an initial two-year term. The deal, which is expected to boost earnings in the first full year after the merger, will create an index compiler with some $9.2 trillion of assets benchmarked against the performance of its market measures, which include the UK’s FTSE 100.

The London Stock Exchange said it intends to continue paying dividends on a progressive basis following the Frank Russell acquisition, with future payments adjusted to take account of the increased number of shares.

Russell, founded in 1936 and based in Seattle, owns an index division that operates equity benchmark gauges, such as the Russell 2000 Index, and an investment management arm with assets under management of $256 billion. The deal is due to be completed by the end of the year, after which Russell Chief Executive Len Brennan will join LSE's executive committee.

LSE reported a 36 per cent increase in operating profits to £102 million pounds in the three months through June 30th while revenues climbed 20 per cent to £300 million.