FRANKFURT Euronext (ENX.PA) is in exclusive talks to buy the London Stock Exchange's (LSE) (LSE.L) French clearing business, a potential deal that would help clear the way for LSE's proposed $28 billion (22.6 billion pounds) merger with Deutsche Boerse (DB1Gn.DE).
London Stock Exchange Group Plc and Deutsche Boerse said on Tuesday that LSE was in discussions about selling the French subsidiary of LCH.Clearnet to address anti-trust concerns raised by the European Commission in relation to their planned merger.
LSE and Deutsche Boerse also hope that selling LCH Clearnet SA to Euronext would help ease French resistance to the merger, people familiar with the transaction said.
The European Commission stated its objections to the merger earlier this month, but outlined fewer concerns than in a first letter sent to LSE and Deutsche Boerse in September. Its concerns focus mainly on clearing of derivatives contracts.
LSE has previously indicated it plans to sell the French unit but said on Tuesday that any deal would have to be reviewed and approved by the European Commission.
"There can be no certainty that this (discussion with Euronext) will lead to any transaction," LSE and Deutsche Boerse said in Tuesday's joint statement.
Numis Securities analyst Jonathan Goslin said that even if it sells Clearnet, LSE Group might have to divest more assets in order to get EC clearance.
The Commission is expected to decide on whether to approve the merger to create Europe's dominant bourse by March 6, 2017.
Euronext opposes the merger but buying LCH Clearnet SA would strengthen its position in the competitive European clearing market following its acquisition of a 20 percent stake in Netherlands-based clearing house EuroCCP, which closed last week.
Euronext's Chief Executive Stéphane Boujnah, said in September that he would look at options for Clearnet if it came up for sale.
Clearing is becoming a much more lucrative business as global reforms introduced after the 2007-09 financial crisis mean banks must clear the bulk of their derivatives trades to make them safer and more transparent.
LCH Clearnet SA would also give Euronext control of a platform that it provides much of the revenue for and would allow it to avoid relying on a competitor's clearing house for an essential service.
However, it faces competition in derivatives clearing from non-EU players, such as Intercontinental Exchange (ICE.N) and CME Group Inc (CME.O).
Representatives at CME were not immediately available for comment and ICE declined to comment.
Credit Suisse analysts said in a note in September that a debt-funded acquisition by Euronext would be about 10-15 percent accretive before synergies, depending on the business that it acquired from LSE Group.
Share price reaction was relatively subdued as Euronext's interest came as no surprise and no deal price has surfaced. Euronext shares were up 1.2 percent at 40.11 euros by 1143 GMT, while LSE shares were down nearly 1 percent at 2768 pence and Deutsche Boerse shares were little changed at 78.68 euros.
(Reporting by Edward Taylor and Maya Nikolaeva, additional reporting by Vidya L Nathan in Bengaluru,; Editing by John O'Donnell and Susan Fenton)