London Stock Exchange seeds planted at the flower show

LONDON / NEW YORK (Reuters) – The London Stock Exchange Group Plc (LSE.L) The $ 27 billion advance purchase of Refinitiv, a financial data company, dates back to May 2013 amid crocuses, champagne and hobnobbing at the Chelsea Flower Show in London.

The Italian banker, Matteo Canonaco, negotiated an introduction between David Craig, who at the time was managing Thomson Reuters Corp's (TRI.TO) Financial and Risk Division, which became Refinitiv last year, and Joseph Baratta, Head of Private Equity at Blackstone Group Inc. (BX.N). The meeting would set in motion a series of events involving Blackstone, Refinitiv and the LSE, which resulted in an agreement expected as early as this week.

Craig and Canonaco, who currently head the consulting firm Canson Capital Partners, have offered Baratta an idea: the F & R unit would be better separated from Thomson Reuters, where the duo felt it was not receiving enough investment according to three sources who know the question directly.

To do this, they will have to overcome several obstacles, starting with the need to find an investor with large pockets and willing to support this idea, sources said. As one of the top leaders of the largest private equity firm in the world, Baratta could play this role, according to sources.

Baratta was intrigued by the flower show and wanted to know more, the sources said.

Craig estimated that the division, which sells data and badysis to traders, investors and other financial clients, could well agree with a stock market operator, particularly the LSE, but it does not. 39 did not share this with Baratta at the show, said one of the sources. .

However, by the time Blackstone signed its agreement with Thomson Reuters, some of its partners had reached the same conclusion.

Blackstone, the LSE and Thomson Reuters declined to comment. Refinitiv and Craig did not respond to requests for comment.

Refinitiv's merger with LSE will take place just 10 months after Blackstone bought a majority stake in the unit from Thomson Reuters under an agreement reached in October. LSE hopes that Refinitiv will help it to become a major player in the global data and infrastructure market.

This is a quick sell for a private equity firm, which typically retains its badets for three to five years. Blackstone and its co-investors will immediately double down on their investment of about $ 4 billion in Refinitiv, announced two sources close to Blackstone. The private equity firm will be paid with LSE shares and plans to remain invested for years.

UNIQUE CHALLENGES

Craig and Baratta followed the meeting at the Flower Show with several other people and were joined by the Thomson Reuters executives and bankers. Although Baratta was intrigued, Blackstone initially thought that a purchase of F & R would be too big a gamble for the company at the time, according to three sources knowing the topic directly. .

Craig also discussed separately over the years with LSE, then headed by Xavier Rolet, the possibility of an agreement for F & R, but the head of the stock market was not convinced that his board of directors would support him, he said. declared an informed source. Another source close to the situation said that Rolet saw more value in the transactions that added to the market operator's trading badets. Rolet declined to comment.

The buyout of the F & R business had unique challenges. At Thomson Reuters, an independent board of trustees, Founders Share Company Trustees, monitored the Reuters news agency and could veto transactions that were perceived as threatening its independence and lack of bias. Reuters provides information on F & R products, including Eikon Terminals, its largest customer.

In addition, some members of Thomson Reuters' board of directors, including President David Thomson, did not initially want to sell the F & R division, fearing that an agreement could underestimate the fact. activity, according to two sources.

A representative from Thomson declined to comment.

In the summer of 2016, three sources close to Blackstone said that the private equity firm had developed a structure for a contract with F & R. Nicknamed Project York by the bankers, this agreement provided for the company. Blackstone's acquisition of 55% of the company's capital, according to two sources close to Blackstone.

Negotiations with Thomson Reuters began in earnest in the summer of 2017. Craig, Blackstone Managing Director Martin Brand, and Thomson Reuters Managing Director Jim Smith met at Blackstone's New York office in July. The talks culminated in a hand-in-hand deal at a dinner at the Bymark restaurant in Toronto on December 4, attended by Blackstone and Thomson Reuters executives and their advisors, three sources with direct knowledge of the issue said.

Before signing the agreement in early 2018, Blackstone traders told their company's investment committee that selling the division to a stock market operator could be a possible exit strategy, two sources said.

Reuters was left with Thomson Reuters. As part of the agreement with Blackstone, the news agency continued to operate independently in accordance with the principles of the trust and received annual guaranteed payments of $ 325 million over 30 years, plus annual increase in inflation. The LSE will inherit this arrangement.

For more information on Trusted Principles, click tmsnrt.rs/2rtSank.

RHINO, LEOPARD AND TIGER

When LSE declared in April 2018 that David Schwimmer, a long-time member of the Goldman Sachs Group Inc. (GS.N), a banker, would take up his duties as CEO in August, aligning the stars for an agreement between Refinitiv and the market operator.

Blackstone's Brand had moved closer to Schwimmer, which had been contracting for the private equity firm. Last year, he contributed to the sale of Blackstone and Goldman's Ipreo financial market data provider to IHS Markit Ltd (INFO.N) for $ 1.9 billion, according to four sources with direct knowledge of the issue.

Brand did not wait for the finalization of the Refinitiv agreement to materialize the idea of ​​a merger with LSE in the spirit of Schwimmer last year. Brand explained to Schwimmer that the future of the financial services industry was to combine trading and data offers. LSE should show the way, he told Schwimmer, according to one of Blackstone's close sources.

At first, Schwimmer was reluctant to make a big deal at the beginning of his tenure as CEO, said three sources. But in April of this year, Schwimmer learned that Blackstone was in advanced talks with Deutsche Boerse AG (DB1Gn.DE) to sell a Refinitiv currency trading business for more than $ 3 billion, said four sources.

Emboldened by an 18% rise in LSE shares in the first quarter and after persuading a new LSE president to back an agreement, Schwimmer said he had to move before Deutsche Boerse bought the forex trading unit, said one of the sources.

Representatives of LSE and Schwimmer refused to comment.

Blackstone slowed talks with Deutsche Boerse to give LSE time to prepare an offer, according to two sources close to Blackstone. Bankers have dubbed the Project Africa deal, calling Rhino Refinitiv, Leopard LSE and Tiger Thomson Reuters, they said.

In May, they had reached a handshake agreement, according to four sources. Craig is expected to lead Refinitiv within LSE, to sit on the executive committee of the stock trader and get shares in the company, said one of the sources.