LSE engages Euronext in exclusive Borsa Italiana talks

By Huw Jones

LONDON (Reuters) – London Stock Exchange entered exclusive talks on Friday to sell Borsa Italiana to Euronext, with the French operator seeing off bids by Deutsche Boerse and Switzerland’s Six as it looks to add another bourse to its European network.

Dubbed “Project Botticelli”, the LSE’s sale of the Milan stock exchange is politically sensitive in Rome because of concerns about who could take control of Borsa’s bond platform, which handles trading of Italy’s government debt.

The LSE is selling Borsa as part of regulatory remedies to see through its $27 billion purchase of data provider Refinitiv, which is 45% owned by Thomson Reuters , parent company of Reuters News.

Offers for Borsa valued the Italian exchange up to 4 billion euros ($4.74 billion), sources had said before the LSE board met on Thursday to review the bids on the table.

It was not immediately clear what price Euronext had offered to gain exclusivity for its bid negotiations, but investors welcomed the move and its shares were up 4% at 0800 GMT. LSE stock was up 0.5%.

Euronext was able to win round both the LSE and Rome by teaming up with Italy’s Cassa Depositi e Prestiti and Intesa Sanpaolo in order to gain Italy’s buy-in.

Both CDP and Intesa will become shareholders in the French exchange operator, if the bid for Borsa succeeds, by subscribing to a proposed capital increase.

“The proposed combination of Borsa Italiana and Euronext would create a leading player in continental European capital markets,” Euronext said in a statement.

‘ITALIAN ECOSYSTEM’

Under the proposed deal, CDP would have a seat on Euronext’s supervisory board, with a second Italian candidate proposed as an independent board member who would become chairman of the combined group.

“Borsa Italiana would maintain its current functions, structure and relationships within the Italian ecosystem and preserve its Italian identity and strengths,” Euronext said.

Borsa Italiana would join a stable of stock exchanges under the Euronext banner that span Dublin and Oslo to Brussels, Amsterdam and Paris, and add significant bond trading, clearing and settlement capacity.

“Key businesses and central functions of the new group would be based in Milan and Rome,” Euronext said.

It would also bring Milan under euro zone ownership after Britain left the European Union in a move that would likely please policymakers in Brussels who want to buttress the bloc’s capital market.

Switzerland’s Six had no comment, while Deutsche Boerse did not immediately respond to requests for comment.

LSE Chief Executive David Schwimmer, a former Goldman Sachs banker, appears keen to have a deal fleshed out before Dec. 16, when EU competition officials decide whether to approve the London exchange’s takeover of Refinitiv.

(Reporting by Muvija M in Bengaluru, Pamela Barbaglia and Huw Jones in London, Mike Shields in Switzerland and Tom Sims in Frankfurt; Editing by Patrick Graham, Jason Neely and Alexander Smith)