LSE buys Russell Investments in landmark index deal

The London Stock Exchange Group is set to become one of the biggest index players in the world, having just bought a major US stock index in a major billion-dollar deal

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The LSE's purchase of Russell Investments for $2.7bn is said to be the largest so far for the stock exchange

The London Stock Exchange is buying Seattle-based stock-index and asset management business, Russell Investments, in a landmark deal worth $2.7bn. The transaction will create a benchmarking giant covering a total $9.1trn of assets.

LSE said in a statement that it is buying the Frank Russell Company from parent company Northwestern Mutual and other minority shareholders, after it was revealed in May that the stock exchange was holding exclusive talks to buy the firm.

The deal is the largest so far for LSE and is considered a milestone in the index industry

Others believed to have been interested in buying Russell when its parent announced plans to sell include rival indexing firm MSCI and Canadian Imperial Bank of Commerce.

The acquisition will be funded in part through a $1.6bn rights issue to be launched in September. The rest of the consideration will be funded from existing and new debt facilities, the British group said.

Russell comprises of a stock-index business, which includes the widely watched Russell 2000 barometer of small-stock performance in the US; and an investment business, which has about $256bn in assets under management. The acquisition will also add the $5.2trn of assets benchmarked to Russell to the $4trn of equities benchmarked to FTSE indices. The deal is the largest so far for LSE and is considered a milestone in the index industry.

“It sits squarely with our diversification strategy, builds on one of our core strengths in intellectual property, and provides another key driver of growth by growing our presence in the US, the largest global financial services market. Russell’s index management business is a strong strategic fit with FTSE. With this acquisition we are strongly positioned for the changing dynamics in the global indices market,” said Chief Executive Xavier Rolet in a statement.

In addition, Rolet said the London Stock Exchange will work with Russell President and Chief Executive Len Brennan, who is joining the LSE executive committee, on determining the exact positioning of the Russell business within the group.

Both directors said they expected high financial returns as a result of the acquisition and that the group now would be well placed to capitalise on trends in the asset management industry, such as the growing popularity of multi-asset solutions and passive investment.