Euronext, the pan-European exchange in the Eurozone, has signed a binding offer and been granted exclusivity to acquire 100% of the share capital and voting rights of Clearnet. Clearnet is a multi-asset, Eurozone-based Central Counterparty (CCP) serving Euronext’s markets, pan-European electronic trading platforms and OTC markets, with gross income of €137m and profit after tax of €36m in 2015, and shareholders’ equity of €301m.
This transaction will strengthen the long-standing relationship between Euronext and Clearnet, and cement the strategic future of Clearnet within the Eurozone.
Stéphane Boujnah
Stéphane Boujnah, Chief Executive Officer and Chairman of the Managing Board of Euronext said:
The potential acquisition of Clearnet represents an opportunity for Euronext to achieve revenue growth and diversification. We will be in a position to provide our existing and future clients with a pan-European, fully integrated trading and post-trade platform. Euronext remains committed to delivering the best long-term solution for its post-trade activities in the interests of its clients and shareholders, irrespective of whether the acquisition of Clearnet is completed. We are looking forward to further strengthening our role as the leading integrated market platform of the Eurozone, powering pan-European capital markets to finance the real economy.
As the transaction is contingent on, among other things, completion of the DB / LSEG merger, which remains under review by the European Commission and other authorities, Euronext continues to explore options for derivatives clearing after the expiry of the cash equities and derivatives clearing agreements with Clearnet in December 2018.
Transaction highlights
The contemplated transaction is expected to generate significant cost synergies, the majority of which are anticipated to be delivered by 2020:
- Annual pre-tax operating cost synergies are expected to amount to circa €13 million per year (on a gross basis), primarily driven by IT savings and operational efficiencies. These are expected to be mostly delivered by 2020 and fully delivered in 2022;
- One-off costs related to transaction expenses, the carve-out and integration of Clearnet and the implementation of the cost optimisation plan are estimated at circa €40 million;
- Additional revenue synergies have also been identified resulting from the launch of trading in new products, in particular targeted at the clients of Clearnet’s Fixed Income and CDSClear businesses, and clearing related to additional Euronext products.
The purchase price of €510 million, which will be subject to a closing adjustment for any change in surplus regulatory capital, will be funded through a combination of debt facilities and existing cash.
Following the acquisition, Euronext will retain strong financing capabilities, with pro forma leverage remaining below peers (1.3x pro forma LTM as of June 2016) and solid deleveraging prospects.
The transaction is expected to be double-digit accretive to Euronext’s earnings from the first full year post completion, excluding integration costs and before synergies. The Return On Capital Employed (ROCE) is expected to be higher than Euronext’s cost of capital from the first full year post completion.
An Extraordinary General Meeting (EGM) of Euronext’s shareholders will be held to approve the transaction and will be convened for mid-February 2017.
The Managing Board and the Supervisory Board of Euronext have unanimously approved the transaction and will unanimously recommend that Euronext shareholders vote in favour of the transaction at the EGM. The Reference Shareholders of Euronext support the acquisition of Clearnet by Euronext and will vote in favour of the transaction at the EGM.
Transaction timetable and requirements
The transaction is subject to various conditions:
- DB and LSEG merger closing
- Regulatory approvals
- Euronext college of regulators’ approval
- Euronext shareholder approval
- Anti-trust approvals in France and Portugal
- Other consents
Subject to the satisfaction of these conditions and completion of the required works council consultation process of Clearnet, the transaction is expected to close towards the end of Q2 2017, concurrent with closing of the DB / LSEG merger.
Rothschild is acting as sole financial adviser to Euronext on this transaction.