Breakingviews - Euronext gain is LSE loss in flawed Italian sale

A man wearing a protective face mask walks past the London Stock Exchange Group building in the City of London financial district in London, Britain, March 9, 2020.

MILAN (Reuters Breakingviews) - Sandro Botticelli’s “The Birth of Venus” has a calm aura that makes it an ageless Italian masterpiece. The sale process for Borsa Italiana, dubbed “Project Botticelli”, lacks any such Renaissance elegance. By openly favouring Euronext’s bid for the Milan exchange, the Italian government has enabled the French group to secure exclusive talks despite submitting an apparent lowball offer.

The 7 billion euro Euronext appears to have beaten bigger rivals Deutsche Boerse of Germany and Switzerland’s Six in the race to acquire Borsa Italiana, which has been put up for sale by its current owner, the London Stock Exchange Group. The group run by Stephane Boujnah submitted the lowest of three bids whose value ranges from 3.5 billion euros to 4 billion euros, Reuters reported on Thursday. But it secured crucial Italian government backing by offering an 8% stake in the enlarged group to state investor Cassa Depositi e Prestiti, as well as board seats and the promise to keep key operations in Italy.

When the LSE put Borsa Italiana on the block, the government of Prime Minister Giuseppe Conte spotted an opportunity to regain the influence it lost when the London-based company took over the exchange in 2007. Rome threatened to use special “golden powers” to block unwanted bids, especially from outside the euro zone.

This heavy-handed intervention meant the LSE could not simply pick the highest bidder. Defying Rome by choosing Six’s offer could have triggered a regulatory and political row that would have slowed the sale, which the LSE needs to complete in order to secure European Union approval for its $27 billion takeover of financial data provider Refinitiv. Choosing Deutsche Boerse could have raised other potential antitrust issues.

The messy auction will be uncomfortable for LSE Chief Executive David Schwimmer, a former Goldman Sachs investment banker. Rome’s intervention means LSE shareholders could miss out on some of the financial benefits, while Euronext’s investors enjoy a windfall. Yet, passing up some extra cash from the sale is probably worth it to complete the Refinitiv deal, which is expected to deliver annual cost savings worth at least 350 million pounds. Prospective buyers of politically sensitive Italian assets have learned how the government can help them knock down the price. Future sellers, meanwhile, would be better off avoiding comparisons to famous artists.


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