The London Stock Exchange Group Plc. has reportedly agreed to pay a price of 15 Euros per share for majority of the stake in LCH.Clearnet Group Ltd. The two companies have decided to extend the negotiation deadline by 31st January, 2013. The new bid is expected to involve cash payment of 14 Euros per share once the deal is completed. In addition, an extra 1 Euro per share will be paid in September, 2017. The bid details were announced through a Joint Regulatory News Service Statement. Incidentally, London Stock Exchange Group, the oldest independent bourse in Europe, earlier proposed a price of 20 Euros per share for 60% stake in LCH.Clearnet. That bid valued the price of the clearing house to be 813 million Euros.
The bid was cut to 14 Euros per share later because of the concerns that the European regulations are going to force the LCH.Clearnet officials to boost the capital by 300 million Euros, which will take the capital to 375 million Euros. Insiders with knowledge on the entire matter have reported this particular news. Incidentally, the European Securities and Markets Authorities have made a proposal that 95% of the clearinghouse’s cash deposits with the financial institutions have to be collateralized with some debt instruments. The entire procedure should comply with the conditions of liquidity and credit risk as well, as mentioned by London Stock Exchange Group last September.
As far as today’s joint statement is considered, it states that the provisionally agreed price of 14 Euros per share was decided on an assumption that the capital will rise by 300 million Euros. According to the statement, the price can get adjusted further in future, depending on the precise quantum of the capital rise. The agenda of the capital rise is currently being discussed by the LCH.Clearnet officials with the regulators and it is expected that a deal will soon be finalized.
Incidentally, clearinghouses work as the central counterparties for each of the buy and sell order that is executed by their members posting any sort of collateral. Thereby the threat of deficit for the trader is reduced by a big margin. As the regulators believe that more central processing calls for better management and security during the derivatives transactions, the concept of clearinghouses has become hugely popular in these days.