(Reuters) - The London Stock Exchange said it has entered into exclusive talks with Northwestern Mutual Life Insurance to acquire its asset management and stock index unit, Russell Investments, in a potential $3 billion (1.78 billion pounds) deal.
Talks between LSE and Russell are “ongoing and there is no certainty that a transaction will be forthcoming”, LSE said in a statement on Tuesday.
It said last week any deal would be partly funded by selling new stock to existing shareholders.
A source familiar with the talks said the LSE’s interest lies in Russell’s index business, which owns the Russell 1000 Global Index for stocks.
Rather than making choices on individual stocks, large investors often track indices such as those compiled by Russell and the LSE. Russell’s indices have $5.2 trillion in assets benchmarked to them.
Combining with Russell could be “transformational” for FTSE International, the source added, giving it a much greater presence in the United States and the ability to compete with leading index providers MSCI and S&P Dow Jones.
MSCI itself was considering a bid, as were Canadian Imperial Bank of Commerce and several private equity houses, sources said last month.
Under Chief Executive Xavier Rolet, the LSE has sought to broaden its earnings, moving into growth areas to offset lower trading volumes in an uncertain economic climate and increased regulation.
Media reports have estimated Russell’s indices earnings at $200 million. A similar multiple to that of MSCI would give that business a value of around $2.4 billion, while the asset management arm is estimated to be worth $1 billion, from pretax earnings of around $100 million.
A spokesman Northwestern Mutual was not immediately available for comment.
Reporting by Pamela Barbaglia, Clare Hutchison and Anjuli Davies, editing by Louise Heavens