DTCC Facing Counterbid For LCH.Clearnet

A group of investment banks are reported to be planning a bid for LCH.Clearnet, the Anglo-French CCP which agreed in late October last year to be acquired by the American CSD and clearing house, the Depository Trust & Clearing Corporation
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A group of investment banks are reported to be planning a bid for LCH.Clearnet, the Anglo-French CCP which agreed in late October last year to be acquired by the American CSD and clearing house, the Depository Trust & Clearing Corporation (DTCC).

The consortium bidding for LCH.Clearnet includes inter-dealer broker ICAP. The bidders are said to be contemplating a price of around 800 million. The DTCC bid is not yet fully priced, but expectations are around €10 a share, which would value the company at about €739 million, or 650 million.

It follows that the consortium bid, if successful, would cap the non-binding agreement LCH.Clearnet reached with the DTCC.

Investment banks, which are increasingly concerned about the cost of using market infrastructure, will almost certainly also view LCH.Clearnet as a way of protecting their interests as CCPs expand into new areas such as securities lending and OTC derivatives, where they have traditionally reigned supreme as the intermediaries. Regulators are encouraging the establishment of CCPs as a means of reducing counterparty risk.

In a statement published yesterday, ICAP confirmed it was an equal member of the consortium. “Discussions are at a very preliminary stage and there can be no certainty that such an offer will be made,” read the statement.

In a statement released today, DTCC said it was continuing to work with LCH.Clearnet on due diligence, with a view to closing the deal announced on 22 October 2008.

“Comments by industry observers regarding a second potential bidder have unfortunately overlooked or mischaracterised key elements of our proposed merger with LCH.Clearnet,” continued the statement. “We would like to clarify our position: the merger we announced jointly with LCH.Clearnet would create a European holding company (LCH.Clearnet HoldCo) that would have a governing Board made up of European firms and be led by a highly regarded senior management team of Europeans.

The development and delivery of European services would be driven by European users, consistent with the operating model of our businesses. The transaction we proposed would include a rebalancing of ownership interest reflecting usage of LCH.Clearnet services and representation on an LCH.Clearnet HoldCo Board. The merger proposal aims to create a user-owned, user-governed model and to help LCH.Clearnet move from a `for profit’ to an `at-cost-based structure’ comparable to DTCC within three years;

Our goal is to create, for the first time, a common support infrastructure for Europe and the U.S. that can help mitigate risk, create greater efficiency and allow financial firms to seamlessly extend their services to investors on a cross-border basis.”

The statement aims to counter suggestions that the big users of LCH.Clearnet, which are also shareholders in the CCP, are worried that a sale to DTCC would undermine competition.

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