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Bourse deal
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London, Dec. 13: The London Stock Exchange is paying £450 million to take full control of FTSE International in a deal that means Britain’s blue-chip stock market index will sever its historic ties with the Financial Times.
Under the deal, Pearson, the Financial Times’s parent company, is offloading its half-share of the stock-tracking business that has become a well-known name since its FTSE all-share index began recording Britain’s stock market movements in 1962.
The buyout received a frosty response in the City, where LSE shares slumped nearly 5 per cent amid concern that the exchange operator was paying over the odds. The transaction values the entirety of FTSE International at £900 million.
David Lester, LSE’s director of information services, insisted the price was fair for a business that produced profits of £40 million last year. “It’s a high-growth, high-quality asset,” he said.
Having been left out of a series of international stock market mergers in recent years, including a failed attempt to combine with the Toronto exchange, the LSE is keen to expand away from its core business of overseeing trading of London’s shares. Lester said: “We want to take FTSE from strength to strength. We want to build on it, invest in it and work with clients to become the No1 in the world.”
FTSE, which stands for Financial Times Stock Exchange, has been a 50-50 joint venture between the LSE and Pearson since 1995. The business makes most of its money by assembling complicated indices at the request of City fund managers. It also gets a small royalty from all investment funds that track the FTSE 100 index. Based in Canary Wharf, the operation employs 350 people.
Such is the level of interest in finance at present that FTSE has been Yahoo!’s most popular search term in Britain this year, ahead of National Lottery, Jobcentre and Katie Price.
Dame Marjorie Scardino, the chief executive of Pearson, said FTSE International no longer fitted into a company dominated by educational publishing, news and Penguin books.
“Proud though we are of that long association, FTSE’s strategy is different from our own,” she said. “We wish it every success.” The sale follows Pearson’s disposal of its stake in Interactive Data, an American market data provider, last year.
FTSE International generated revenue of £98.5 million last year and had assets on its balance sheet of £100 million, almost all of which were accounting “intangibles” based on goodwill associated with its brand.
Experts were surprised about the aggressive price placed on the business. Lorna Tilbian, a Numis analyst, said the buyout valued Pearson’s stake in FTSE at £100 million more than she had expected.
Daniel Garrod, a Barclays Capital analyst, said FTSE International was being sold for 16 times its expected profits for next year, compared with a valuation multiple of 11 to 12 placed by the American stock market on a rival index compiler, MSCI. “Certainly, in the near term, it looks expensive compared with its listed peer, MSCI, but FTSE is faster-growing,” Garrod said.
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