LCH.Clearnet is to re-purchase the majority of the shares held by its largest shareholder, Euronext, which has held a stake in the clearing house since it merged its Clearnet central counterparty clearing subsidiary with London Clearing House (LCH) in 2003. The move will be seen as necessary to counteract concerns in the marketplace of a vertical alignment with the Euronext.Liffe trading platforms, making it more difficult for LCH.Clearnet to service other exchanges.
“As we respond to competitive changes in the clearing sector and the requirements of our customers, we have to ensure that LCH.Clearnet has the right operating model for this environment,” explains Chris Tupker, chairman of LCH.Clearnet. “By buying back the great majority of Euronext’s shareholding, we will better align customer and shareholder interests while retaining Euronext as a significant customer with an important voice in the development of our business. At the same time, it will enable us to deliver aggressive clearing fee cuts and will also facilitate significant member rebates in due course. We believe that these steps will promote the long-term success of LCH.Clearnet.”
LCH.Clearnet says the terms of the re-purchase will involve two steps. First, the early redemption of the redeemable convertible preference shares of LCH.Clearnet (which are redeemable in December 2008 under their current terms) held by Euronext at their redemption value of approximately €199 million.
Secondly, the subsequent re-purchase by LCH.Clearnet of 26,183,362 of the ordinary shares of LCH.Clearnet held by Euronext, to be effected at a price of €10 per ordinary share, the value at which the shares were issued at the time of the LCH-Clearnet merger in 2003.
Euronext will retain a 5% holding in the outstanding shares of LCH.Clearnet after the buy-back is completed.
In a statement, the LCH.Clearnet board said it had concluded that the re-purchase was “an opportunity for LCH.Clearnet’s customer and shareholder interests to be more closely aligned and LCH.Clearnet will, as a result, be better positioned to respond to on-going challenges and developments in the clearing sector.”
The repurchase remains subject to final agreement and approval by LCH.Clearnet’s shareholders, and to regulatory and other appropriate consents.
LCH.Clearnet emphasises that the detailed mechanics of the repurchase remain to be agreed, but that it is anticipated that consultation with LCH.Clearnet shareholders will take place in the second quarter of 2007, prior to the despatch of formal shareholder documentation.