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May 21, 2014

LSE considers $3 bn Russell deal

Acquisition of index compiler and asset manager would be exchange operator’s biggest ever

The London Stock Exchange (LSE) Group has confirmed it is in talks over the acquisition of Russell Investments – the index compiler and asset manager – as part of a deal worth almost $3 bn, potentially the largest in the group’s history.

The exchange operator is discussing a possible deal with Russell’s parent firm, the Northwestern Mutual Life Insurance Company, which confirmed plans to spin off the subsidiary in an auction later this year. Previous bidders include fellow securities indexer MSCI and the Canadian Imperial Bank of Commerce, also keen to expand its US operations.

Russell is best known for compiling widely followed benchmarks, including the Russell 2000, which tracks the US’ most successful small-cap companies, suggesting that any move by LSE Group will lead to its increased presence across the Atlantic. Russell’s business also comprises financial consulting and asset management, with approximately $260 bn of assets under management.

A spokesperson for LSE Group announced this week, however, that there is ‘no certainty a transaction would be forthcoming’ at present, with any potential deal still at least a month away from completion.

The mooted acquisition forms the latest part of LSE Group’s plans to cement its position as a global exchanges operator. Efforts by CEO Xavier Rolet have seen the group upgrade its listings technology, acquire a large derivatives business and, earlier this week, extend its control over LCH.Clearnet. By cutting more costs and renegotiating several profit-share agreements with the clearing house’s other stakeholders, LSE Group stands to gain around £45 mn ($76 mn) worth of operating profits.

Though Rolet oversaw efforts to allow LSE Group to develop and launch more indices by mopping up Pearson’s remaining stakes in FTSE International in 2011, the move did not give the exchange operator much license to compete in the US market. If this new deal is successful, industry commentators estimate that LSE Group would become the world’s third-largest index provider, behind S&P Dow Jones and MSCI.

Laurie Havelock

Laurie has been part of the IR Magazine team for more than a decade, starting out as a reporter and research editor before becoming editor in 2023. He was previously acting business editor at the i newspaper and deputy business editor at The Daily...