The London Stock Exchange has come a long way from the days when pin-striped men would stand around trading equities. It doesn’t have a real trading floor any more, and nobody has to wear a suit. And when its latest deal goes through it won’t even be mainly in the business of trading equities either. With its plans for a $27bn merger with data group Refinitiv, the LSE will become one of the largest financial and trading data companies in the world.
A bold move…
Refinitiv was last year spun out of Reuters, the news agency that has turned itself into one of the largest providers of news, data and analytics to the financial-services industry. Jointly owned by Thomson Reuters and the private-equity firm Blackstone, it has built up a major business in data analytics and financial information.
A merger with the LSE is an ambitious and bold move. It will bring together the data expertise of Refinitiv with the trading experience of the LSE to create a services provider to banks and brokers, offering a platform for trading shares, currencies, bonds and derivatives, and terminals for providing the news and data traders need. It should prove a powerful package. The problem is, another company already offers a very similar range of services: Bloomberg.
The data company, founded and still controlled by the former New York mayor and occasional presidential hopeful Michael Bloomberg, has arrived at a similar point, but from a different place. Bloomberg started as a specialist offering terminals to bond traders, competing with Reuters, and since then has bolted on a high-profile news and television arm, along with a massive presence on trading floors around the world. Its high-priced terminals are ubiquitous within the banking and fund-management industry and its messaging service is the main way financial professionals communicate with each other. With revenues of $10bn, and hugely profitable, it is one of the most successful new companies to emerge in the last 40 years. It will be a fierce competitor for the combined LSE-Refinitiv for three reasons.
First, it has vast resources. Bloomberg can chuck a lot of money at any problems that need fixing. It is not just cash, either. Within its organisation it has the software and research expertise to more than keep up with what any potential competitors are offering. For every dollar that LSE-Refinitiv can spend, Bloomberg can spend at least three and possibly more.
Second, it has a brand. Bloomberg has been very clever at building its image over the years. It spends plenty of money on arts sponsorship. Its TV channel probably doesn’t make money, but builds its name. In the financial markets, a Bloomberg terminal is a status symbol. It is classy, refined, intelligent, and high-tech. It is going to take a long time and a lot of money to build a brand as strong as Bloomberg.
Finally, Bloomberg is privately owned, and can spend whatever sums are needed to keep it ahead of the competition. Michael Bloomberg still owns 88% of the business, and even at 77 shows no sign of selling out. It doesn’t have to worry very much if it takes a short-term hit to profits. The owner can easily afford it. By contrast, LSE-Refinitiv will have Blackstone as its largest shareholder, and the private-equity firm is not likely to tolerate years of meagre profits, or even losses, while it competes with Bloomberg. Public companies are often at a disadvantage against well-managed private ones, and this battle will be no exception.
… but a dangerous one
It remains to be seen whether the LSE-Refinitiv merger can be completed. The LSE has a history of failed deals and takeovers behind it, and this one could very easily run into regulatory roadblocks, or end up being rejected by its shareholders. There could even be a counter-bid. Even so, the LSE has chosen the right direction. Trading and data are converging on each other, and the company needs to drive that forward. But its chances of ever matching Bloomberg are very slim. Maybe it should have tried to merge with that company instead?