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London Stock Exchange slips on Russell sale price disappointment

Discussion in 'Market News' started by Lily, Oct 9, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    LSE sells asset management business for lower than expected $1.15bn

    Shares in London Stock Exchange have fallen back in a rising market, on disappointment at the price it will receive for the disposal of its Russell Investments business.

    It will sell the asset management operation, part of the Frank Russell group it bought last year, to US private equity group TA Associates for $1.15bn (£752m), with net proceeds of around $920m (£601m). The division had been up for sale since February, during which time LSE shares have risen almost 3%. But following the disposal news, they are down 15p at £24.36. Analysts at Numis said:

    Although the gross figure is in line with what we estimate LSE originally paid for it late last year ($1.1bn), the net value is around 35% below what we are currently valuing it at ($1.4bn) and well below the figures that were being rumoured in the press (up to $1.8bn).

    Despite the price not being as high as it could have been, we believe this is a positive development for the group at it allows management to focus on delivering its targeted growth strategy and achieving the expected cost synergies. The proceeds from this transaction (expected to complete in the first half of 2016) will be used to reduce LSE’s pro-forma net debt to EBITDA to 1.6 times, bringing it in line with management’s target of 1.0 times -2.0 times. We maintain our hold recommendation but our target price decreases to 2,450p from 2,500p reflecting the lower than expected sale price.

    While the net sale proceeds of $920m are modestly below the low end of consensus expectations ($1.0-1.5bn), we think the deal represents the best balance between maximizing shareholder value and minimizing execution risk. We believe it was imperative for LSE to conclude a deal swiftly following press reports that attempts to sell the business to other parties had stalled.

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