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LSE sells Russell Investments for $1.15 bn

10 Oct 2015

The London Stock Exchange Group Plc (LSE) said yesterday that it plans to sell Russell Investments, the asset management business it acquired as part of its purchase of US-based Frank Russell Co last year, to private equity firms TA Associates and Reverence Capital Partners for approximately $1.15 billion (£748 million) in cash.

LSE had announced its intention to sell the business earlier in February. Net proceeds from the sale, is expected to be around $920 million, which will be used to reduce the company's debt.

The price tag of $1.15 billion was below market expectations and as a result, shares in LSE have fallen over 1 per cent to 2,423 pence yesterday in an otherwise rising market.

LSE acquired Frank Russell for $2.7 billion from Northwestern Mutual primarily for its large index business. LSE owns indices groups FTSE and Borsa Italiana.

Russell Investments has $266 billion of assets under its management.

The group's chief executive Xavier Rolet said, ''We are very pleased to have agreed the proposed sale of Russell Investments to TA Associates and Reverence Capital, both of whom have strong track records investing in the asset management industry.''

''We believe that the breadth of Russell Investments' investment and implementation operations, as well as its orientation to multi-asset and solutions investing will continue to be a differentiator and driver of growth in the marketplace going forward.'' TA Associates managing director Todd Crockett commented.

For the half year ended 30 June 2015, Russell Investments had a gross income of $757 million and pretax profit of $43 million. It had gross assets of $1.846 billion and liabilities of $752 million, according to an LSE statement.

The transaction is expected to close in the first quarter of 2016 subject to customary closing conditions and approvals.

''Until completion, LSEG remains firmly committed to Russell Investments, its global customer base, its exemplary client service and its innovative product offering,'' Rolet said.

Under the terms of the deal, LSE will be paid $1 billion in the first half of 2016 with the balance of $150 million paid annually in four equal installments, starting December 2017.

According to analysts at Numis Securities, although the gross figure is in line with the estimated $1.1 billion LSE originally paid for it late last year, the net value is around 35 per cent below their current valuation of $1.4 billion and well below market speculation of $1.8 billion.

Credit Suisse was quoted as saying: ''While the net sale proceeds of $920 million are modestly below the low end of consensus expectations ($1.0-1.5 billion), we think the deal represents the best balance between maximizing shareholder value and minimizing execution risk.''

JP Morgan and Goldman Sachs are acting as financial advisors to LSE on the transaction.