Financial News
$2 billion investment made by Microsoft for an LSE cloud agreement.
Microsoft (MSFT.O) will purchase a 4% share in the London Stock Exchange Group (LSEG.L) for $2 billion, the latest example of the blurring lines between Big Tech and financial institutions that has regulators concerned.
LSEG said on Monday that the purchase will result in a “significant” increase in revenues after 2025 from selling more of its existing products through Microsoft apps to extend the client base, as well as better product pricing, but it declined to provide exact projections.
Deepening interconnections between a number of large global cloud corporations, including Microsoft, Google (GOOGL.O), Amazon (AMZN.O), and IBM (IBM.N), and financial companies, such as banks and exchanges, have caused regulators to look more closely at the connections.
Microsoft has a long history with LSEG, and the exchange group’s CEO, David Schwimmer, stated that conversations on more strategic cooperation began around a year ago.
“This is a long-term partnership.” “I would expect our clients to start seeing the benefits of the products we will be producing together 18 to 24 months out, and we will continue building from there,” Schwimmer told Reuters.
Google said in November 2021 that it would invest $1 billion in CME Group to migrate the trading operations of the US derivatives exchange to the cloud. The same month, the Nasdaq stock market and Amazon announced a multi-year agreement.
Regulators have raised worry about financial businesses’ over-reliance on too few cloud providers, citing the disruption that could occur if a provider serving many clients went down.
The European Union has just enacted legislation imposing controls on cloud providers in financial services, and the United Kingdom is expected to follow suit.
When questioned if LSEG had guaranteed that regulators were on board, Schwimmer stated, “You should believe we do not like to surprise our regulators.”
‘MEANINGFUL”
The agreement with Microsoft, which offers the software company a seat on LSEG’s board, is a partnership to enjoy the benefits of “consumption-based pricing,” not a standard cloud arrangement, according to LSEG.
Schwimmer stated, “We will continue to maintain our multi-cloud strategy and collaborate with other cloud providers.”
Over the two-year period 2023-2025, incremental costs will total 250 to 300 million pounds, with an impact on EBITDA margin of 50 to 100 basis points.
Analysts pressed Schwimmer to elaborate on his claim about the deal’s “significant” income boost, but he declined.
“This feels like an important milestone in LSEG’s journey toward being information solutions-centric, even if meaningful revenue growth numbers are lacking,” Jefferies analysts wrote.
According to Jefferies analysts, the transaction might “transformatively” widen the appeal of LSEG’s Workspace, providing a potentially attractive alternative to Instant Bloomberg for the first time.
LSEG shares were up almost 3%, leading the blue-chip FTSE 100 index (.FTSE) and on track for their best day since mid-August.
Microsoft’s Frankfurt-listed shares fell 0.4%.
‘INTEROPERABILITY’
As part of the agreement, LSEG has agreed to spend a minimum of $2.8 billion with Microsoft on cloud-related services throughout the course of the collaboration.
Microsoft stated that the initial focus will be on providing “interoperability” between LSEG Workspace and Microsoft Teams, Excel and PowerPoint with other Microsoft programs, and a new version of LSEG Workspace.
LSEG and Microsoft will investigate how they can collaborate to potentially move trading or clearing activities to the cloud.
“It’s in a more exploratory phase right now,” Schwimmer said, “but we will update the market as it develops.”
LSEG purchased Refinitiv for $27 billion from a consortium led by Blackstone and Thomson Reuters, making the exchange the second-largest financial data provider after Bloomberg LP.
According to the exchange operator, Microsoft will purchase LSEG shares from the Blackstone (BX.N)/Thomson Reuters (TRI.TO) consortium. According to Refinitiv statistics, the transaction will make Microsoft the sixth-largest shareholder in LSEG.
Following the Refinitiv acquisition, Thomson Reuters, which owns Reuters News, now has a minority stake in LSEG. LSEG also pays for news from Reuters.
Microsoft’s acquisition is expected to close in the first quarter of 2023.
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