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Bloomberg Face-Off Awaits London Stock Exchange Following Refinitiv Deal Close

03/02/2021 12:40pm

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By Ben Dummett 

Now that the London Stock Exchange Group PLC has completed its $15 billion acquisition of financial data company Refinitiv Holdings Ltd., the next big test is proving it can reclaim at least some of the ground it has lost to industry heavyweight Bloomberg LP.

Refinitiv competes against Bloomberg selling an array of financial-data to the finance industry. Yet, Refinitiv's share of the market against its rival has been declining for years. That underscores the LSE's challenge, particularly given that some users say Bloomberg's ubiquitous data terminal that is found on institutional trading desks around the world is more expensive than the equivalent from Refinitiv.

The company's slice of the global market data pie as measured by revenue fell from a market-leading 32% in 2010 to 21% in 2019, according to data from Burton-Taylor, the research and advisory arm of London-based brokerage TP ICAP. Over the same period, Bloomberg's share climbed from 29% to 33%.

Bloomberg and Refinitiv compete with Dow Jones & Co., the parent company of The Wall Street Journal.

Refinitiv distributes data through several channels, including its Eikon computer terminal -- which is now called Refinitiv Workspace. But the terminal business is among its slowest growing, as technology replaces humans in securities trading. Indeed, the number of professional terminals taking real-time pricing data from LSE exchanges fell 19% between 2019 from 2015.

Still, Refinitiv's terminal business remains a significant operation, generating about 40% of its total revenue, estimates UBS Investment Bank. Refinitiv reported total revenue of $4.8 billion for the nine months ended Sept. 30. The LSE declined to breakout revenue for Refinitiv's different data distribution operations.

The terminal business faces "the greatest amount of headwinds," said UBS analyst Michael Werner. "Ultimately, LSE is essentially going to have to manufacture a turnaround there to make this deal successful."

While analysts have praised the terminal content provided by Refinitiv, the LSE needs to help make it easier for users to work with that information, they said.

As an example, for equity investors, the product's market data, research tools and content are very competitive, said Dan Connell, head of market structure and technology at Greenwich Associates. But Refinitiv will be counting on the LSE's additional funding and expertise to bolster the product's technology to help expand the terminal business, Mr. Connell said.

For LSE Chief Executive David Schwimmer, the newer Refinitiv Workspace product is already an improvement on the Eikon in terms of flexibility and ease of use. LSE also plans further investment in areas such as environmental, social and corporate-governance analytics, and fixed-income data, he said Friday. Bloomberg declined to comment.

Integrating Refinitiv's operations will likely be made easier by the strength of some of its faster-growing businesses. That includes Refinitiv's data feeds that supply pricing and other information real-time directly into the systems of banks and other large institutions to help these customers manage their balance sheets and minimize risk. Meanwhile, the LSE has already benefited from the data provider's electronic foreign-exchange and fixed-income trading platforms FXall and Tradeweb Markets Inc.

The stock of Refintiv's majority-owned Tradeweb is up 37% in New York since the LSE-Refinitiv deal was first announced as the marketplace generated record average daily trading volumes last year of $838 billion.

Tradeweb's stock-price gain effectively cut LSE's price for the rest of Refinitiv by about GBP1.26 billion, equivalent to $1.73 billion, Berenberg Capital Markets said in January.

Investors support the deal. LSE's London-listed stock is up 66% since news of the merger talks -- easily outstripping the overall market.

LSE's Refinitiv wager comes as the rise of passive investing and computerized trading spurs demand for market intelligence that can be packaged and sold. That opportunity is driving providers to consolidate to broaden their offerings. In November, S&P Global Inc. struck a $44 billion deal for IHS Markit Ltd.

The deal marries LSE's equity trading venues, clearing and settling over-the-counter derivatives, and its index licensing business with Refinitiv's array of financial data, analytical and compliance products, along with its foreign-exchange and fixed-income trading venues.

The LSE forecasts the Refinitiv deal will help it generate annual revenue growth of 5% to 7%, fueled in part by cross-selling each other's products. Still the growth rates of Refinitiv and LSE recently fell short of those targets and regulatory curbs could challenge this target.

Based on the latest financial results, LSE and Refinitiv each grew year-over-year revenue by 2% in the third quarter last year. Meanwhile, the European Commission last month ruled that the combined group can't play favorites in distributing its data among vendors as a condition of approving the deal.

Mr. Schwimmer is undeterred as the LSE already operates an open-access approach. "We are committed to it and we think it is very customer friendly."

Write to Ben Dummett at ben.dummett@wsj.com

 

(END) Dow Jones Newswires

February 03, 2021 07:25 ET (12:25 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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