London Stock Exchange Group Plc is expected to face in-depth scrutiny of its $27bn deal to buy data provider Refinitiv as regulators grapple with how to monitor a fast-changing market.
The EU’s antitrust authority is likely to rule the takeover requires a so-called Phase 2 examination that may add months to the review, according to lawyers and experts following the case. UBS Group AG analysts said this week that they expect a second phase review, which could weigh on LSE stock.
“The European Commission may be particularly careful when it analyses access to data, and how these complex and rapidly changing markets evolve in the next two to five years,” said Bloomberg Intelligence analyst Aitor Ortiz. “Data is a hot topic so regulators may want to make sure they aren’t missing anything.”
The closely watched deal review could set a precedent for future mergers as exchange groups seek to diversify business models away from volatile trading revenues and into lucrative data and subscription services.
The deal comes as antitrust officials weigh the value of data and live data feeds and how control of big data can bolster a company’s position. Margrethe Vestager, the EU’s antitrust chief, has expressed concerns about how some companies can amass data and become gatekeepers for an industry.
LSE has previously said it plans to close the deal this year. A spokeswoman declined to comment on whether the probe will be extended.
Refinitiv offers products including the Eikon terminals, the FXall platform and trading execution system Redi. Bloomberg LP, the parent of Bloomberg News, competes with Refinitiv to provide financial news, data and information.
The companies face a June 15 deadline to offer early concessions and should get a decision from the EU on an in-depth probe a week later. Any longer review will give regulators until October to rule on the deal.
At least one rival has expressed concerns about the market power of combining fixed income trading platforms like Tradeweb and FXall with London Stock Exchange’s giant clearinghouse LCH, according to a person familiar with the matter who asked not to be identified because the filing to the EU is confidential. The merged entities could decide to funnel all trades to LCH, the person said.
Another area that may be scrutinised is the MTS bond platform at the LSE-owned Borsa Italiana, which would become a more dominant player with the addition of Tradeweb. The Italian press has reported this month that the Italian government would be interested in buying Borsa Italiana.
David Warren, chief financial officer at LSE said at Piper Sandler’s Global Exchange & Financial Technology Conference on June 4 that despite a difficult operating environment its Refinitiv deal remains on track. He said that it has received merger clearance from several countries, including Germany and Ukraine.
LSE-Refinitiv is also different to other megadeals in the exchange sector like Deutsche Boerse AG and LSE’s attempted merger in 2017, according to Ortiz. It’s hard to tell how regulators will define the markets and that will determine where the combined entity may have market power, he said.
But Niki Beattie, founder of Market Structure Partners, said that “exchanges have continuously underestimated the regulatory scrutiny of their proposed deals.”
“It seems highly likely that it could have happened again and that the process will go to a second stage,” she said. “Regulators have gained more and more experience in looking at exchange related deals over the last decade and data has also become an increasing focus.”