Friday2 August 2019 ★ FINANCIAL TIMES 15COMPANIES
CAT RUTTER POOLEY AND
ARASH MASSOUDI
David Schwimmer, the chief executive
of theLondon Stock Exchange Group,
could hardly have written a better
script.
The company’s $27bn acquisition of
Refinitiv, the financial data and trading
group that includes the Eikon terminals
and a stake in bond trading platform
Tradeweb, has enjoyed an almost rap-
turous reception from investors. Since
the Financial Times first revealed the
LSE was closing in on the deal a week
ago, shares in the more than 300 year
old exchange have surged 24 per cent.
“The market has voted with their
cheque books,” said Andy Nybo of Bur-
ton-Taylor International Consulting, a
division of TP ICAP.
After regulators in Brussels ripped up
the LSE’s planned merger withDeut-
sche Börsein 2017, the expectation is
that the Refinitiv transaction will turn a
company still best known for its UK
exchange and ownership of clearing
house LCH into a major force in the glo-
bal distribution of the market data.
“From a shareholder perspective, this
is the right asset for the right owner —
that box is definitely ticked,” said Iacopo
Dalu, at Janus Henderson, which is an
LSE shareholder.
However, the almost euphoric reac-
tion only sharpens the pressure on Mr
Schwimmer, who has only led the LSE
for a year, and theeven newer chair-
man, Don Robert, to make the largest
deal in the group’s long history work.
Some of the key challenges are as fol-
lows:
The spectacular swoop on Refinitiv is
not the first time that the LSE has sought
to diversify away fromshare trading
and initial public offerings. Its biggest
and fastest-growing division is now
information services, which is largely
made up of the index providers Russell
and FTSE International acquired under
former chief executive Xavier Rolet.
While Refinitiv’s Eikon terminals,
which are in ferocious competition with
Bloombergfor a spot on the desks of
traders and portfolio managers, will
bring more recurring revenues, analysts
voiced concern over the lacklustre
growth. Refinitiv’s revenues fell each
year between 2012 and 2016, but have
since stabilised. “The overall growth of
Refinitiv revenues is concerning,” noted
analysts at KBW.
Mr Schwimmer admitted that it had
not “been a priority for Thomson Reu-
ters to be invested in the platform
[Eikon],” but insisted that there has
been a greater focus since a Blackstone-
led consortium acquired Refinitiv in a
$20bn deal last year.
The group will face a challenge both to
lift top line growth at Refinitiv’s core
Eikon data businessand lift margins.
Some ofthis will come from the £350m
of costs savingsthe LSE has outlined.
If the LSE has a problem in making
Eikon a more enticing proposition than
Bloomberg, a significant stake in
Tradeweb and complete ownership of
currency trading platform FXall takes it
beyond share trading. Analysts at
JPMorgan say that one of the chief bene-fits of the deal for the LSE is “diversifica-
tion and expansion of its trading busi-
ness into currency and fixed-income.”
Kyle Voigt, an analyst at KBW, says
that for now the LSE’s management are
also simply receiving credit for swoop-
ing decisively on Refinitiv.
“This is a strategic deal. You’re buying
strategic assets... The industry has
been consolidating for a number of
years. There’s a scarcity value to the
assets that are left,” he said. But the exe-
cution has to follow.
The LSE was quick to acknowledge
that “large market infrastructure trans-
actions are highly complex” and can
require “material remedies.”
Yet at first glance, the deal is unlikely
to present as many regulatory obstacles
as the LSE’s proposed merger with Deut-
sche Börse. The demand from Brussels
that the LSE sell its Italian bond trading
platform MTS to satisfy competition
concerns dealt the final blow.
Refinitiv’s business has far fewerareas in common than the LSE’s did
with Deutsche Börse. Mr Schwimmer
said the businesses were “highly com-
plementary but not overlapping”. Con-
cerns could instead centre on so-called
network effects, and the potential abil-
ity of the exchange to direct trading vol-
umes to its own clearing service.
Refinitiv owns a majority stake in
Tradeweb, the largest over the counter
rates trading platform, while the LSE
owns more than 80 per cent of LCH,
which dominates clearing of interest
rate derivatives.
However, in contrast to the proposed
Deutsche Börse transaction, the combi-
nation of the LSE and Refinitiv is
unlikely to get swept up in anyjostling
between governments that have been a
feature of the industry’s aborted cross-
border deals over the last two decades.
“It’s proven very difficult for
exchanges to get deals done with other
exchanges either because of competi-
tion issues or because of protection of“perceived national assets,” said Niki
Beattie, founder of Market Structure
Partners.
Mr Schwimmer acknowledged the
difficulties in attempting an interna-
tional exchange mega-deal, but said the
Refinitiv deal was different. “Cross-bor-
der exchange transactions are pretty
challenging. That can be for political or
industry reasons. This is not a cross-bor-
der exchange transaction”.
But in the Deutsche Börse transaction
too the exchanges were confident of
winning round regulators with only
minimal concessions. The LSE’s new
position as the largest global exchanges
group by revenues is also likely to
attract scrutiny from US regulators.
With the obvious exception of the
Deutsche Börse transaction, the LSE
yesterday was quick to tout its record of
successfully integrating acquisitions.
Most of those deals were completed
underMr Rolet and former chairman
Donald Brydon, however.
Mr Schwimmer is a Goldman Sachs
M&A banker by training, and so under-
stands the perils of acquisitions well.
But he has little experience as chief
executive and none digesting a deal of
this scale. It will take a few years and
good execution for this to be truly value
creating,” said Mike Fox of Royal Lon-
don Asset Management, one of the LSE’s
top 25 shareholders.
Jeffrey Sprecher, the founder and
chief executive of Intercontinental
Exchange, the owner of the New York
Stock Exchange, was quick to praise the
LSE’s new management team. “David
Schwimmer andDavid Warren[chief
financial officer] are two people who I
have known for years and highly respect
and are tremendous at what they do,” he
told analysts as ICE reported results.
Analysts atExane BNP Paribas put at
just 20 per cent the chance that ICE will
seek to disrupt the deal with its own bid
for the LSE. But Mr Sprecher — just like
billionaire Mike Bloomberg — will be
among those looking to make life harder
for the LSE’s new team.
See Lombard and City InsiderTests await LSE when deal euphoria subsides
Investors cheer $27bn acquisition of data and trading group Refinitiv but hurdles to success remain to be cleared
Investors praise LSE’s bold move
Share price ( ) Aug Jan Apr Jul Aug
Source: Refinitiv (formerly Thomson Reuters) Source: Burton-Taylor InternationalRefinitiv comes with a load
of debt
Net debt (bn)*Excludes Refinitiv’s preferred sharesLSE Refinitiv* *Bloomberg tops the financial data landscape
Revenues, (bn) Bloomberg
Refinitiv
RTRS News
S&P Global Market
Intelligence
Moody’s AnalyticsFactSetICE P&A D*MorningstarSource: Burton-Taylor*Pricing & analytics desktopTolga Akmen/AFP/GettyFeel the bourse
VG Siddhartha, who died this week,
introduced coffee — and café culture —
to tea-loving India, offering the nation’s
aspirational new middle class a taste of a
global lifestyle along with the cheery
promise“a lot can happen over coffee”.
Starting with one cyber café in Banga-
lorein 1996 and inspired by Starbucks’
Howard Schultz, India’s “coffee king”
built the country’s most ubiquitous,
homegrown retail brand, with more
than 1,700Café Coffee Dayoutlets.
In a socially conservative country
with an acute shortage of public space,
CCD cafés becamehang-outs for stu-
dents, laptop-toting professionals, amo-
rous couples and even affluent sari-clad
women, reflecting the zeitgeist of an
aspirational young nation emerging
from decades of socialist austerity.
But even while developing one of
India’s biggest consumer brands — and
buildingmidsize tech company Mind-
tree, Siddhartha kept a lowprofile.
His death and its tragic circumstances
— his body was pulled from a river on
Wednesday — has prompted an out-
pouring of grief both from the elite busi-
ness community and ordinary Indians
for whom Café Coffee Day was the stage
on which the quotidian drama of their
lives played out.
“He built India’s version of Star-
bucks,” said Mohandas Pai, a technology
investor and former director at software
group Infosys, in which Siddhartha wasan early backer. “He was a great part of
the tech ecosystem of Bangalore. This is
very distressing to all of us.”
Deepu Sebin, founder of health-tech
start-up DailyRounds, also paid tribute
to the late businessman. “We pitched
our start-up ideas at CCD,” he wrote in a
letter to Siddhartha shared on Twitter.
“Many of us tasted the first cappucci-
nos from CCD. Some of us had our first
date there... You built a brand the
country will always be proud of. And
you will always be an inspiration.”
Born in 1959 and raised on his family’s
400-acre coffee plantation in southern
India’s Chikmagalur district, Sid-
dhartha was educated by tutors at home
and a local boarding school, before grad-
uating in economics from Mangalore’s
St Aloysius College.
In 1985, after two years learning
equity trading as a research analyst in
Mumbai, he set up his own stock bro-
kerage in Bangalore, where he devel-
oped strong ties to the city’s nascent
tech industry and married the daughter
of a prominent Congress party politi-
cian. But he remained loyal to his roots
in south India’s picturesque coffee-growing region, acquiring his own
expansive coffee estates.
Inthe early 1990s Siddhartha spon-
sored a delegation of south Indian cof-
fee-growers to travel to New Delhi to
appeal to then finance minister Manmo-
han Singh to relax the stifling state
monopoly over coffee exports. When
the market opened soon afterwards, he
set up his Amalgamated Bean Coffee
Trading Company to ship the crop from
his estates and other growers.
By 1995 ABC was India’s largest
exporter of unroasted beans, and the
entrepreneur decided to set up a coffee
chain. Initially it was just a sideline.
That changed in 2001, when the then
20-store chain started attracting the
attention of big investors, which helped
him fund an aggressive expansion.
But Siddhartha had been under grow-
ing pressure since the 2015 Bombay
Stock Exchange listing of hisCoffee Day
Enterprises. Its shares never traded
above the IPO price, frustrating some
investors seeking to cash out.
Since 2017 Siddhartha had also been
locked in a battle with India’s income
tax department and other agencies,
which had seized some of his shares.
In a letter apparently written just
before his death, he sounded despond-
ent, talking about pressure from lend-
ers, the tax department and one of his
private equity investors. It was far from
his past optimism. “I have failed as an
entrepreneur,” he wrote.
But for the millions of Indians who
wove CCD into the fabric of their lives,
nothing could be further from the truth.
Amy KazminObituary‘Coffee king’ brought café culture to India
VG Siddhartha
Entrepreneur
1959-
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