One of London Stock Exchange Group’s largest shareholders has backed extra spending to fix long-standing problems at its new $27bn purchase Refinitiv, saying the group should invest “more and sooner if necessary”.
Lindsell Train, which has the largest shareholding by a fund manager in the group, told investors it was important “not to lose sight of the strategic benefit of the deal” after LSE shares lost a fifth of their value last month.
Investors have fretted about the impact of Refinitiv after LSE said in March it would incur higher-than-expected upfront expenses to integrate the data and trading provider, and prepare for the sale of Borsa Italiana to Euronext.
That unexpected announcement triggered the biggest one-day fall in LSE shares in 20 years.
The Refinitiv purchase, the largest in the exchange’s history, has transformed LSE into one of the world’s largest providers of market infrastructure and financial data, and one of the most valuable on the FTSE 100.
At a stroke, the deal tripled the group’s revenues and increased the number of employees fivefold to more than 25,000.
Purchasing Refinitiv meant taking on a business that has been steadily losing some of its market share over the past decade to Bloomberg and smaller, more nimble rivals such as FactSet and S&P Global Market Intelligence. Last week, an extensive outage at Refinitiv made its Eikon data terminals unavailable for several hours.
Annual results last month revealed LSE would spend £1bn this year — £850m of capital expenditure and £150m of operating expenditure — which analysts feared would hit the financial targets for the deal.
Lindsell Train holds a 4.2 per cent stake. The larger holdings are owned by consortiums led by Blackstone, Thomson Reuters and the Qatar sovereign wealth fund.
In a meeting with shareholders following publication of the exchange’s earnings, Lindsell Train said LSE management acknowledged they knew Refinitiv would need investment when they were working on the deal in 2019.
“Part of the investment thesis was based on the knowledge that Thomson Reuters had underinvested in certain areas. Given the scale of the business and complexity, this was always going to require heavy lifting,” said Nick Train, co-founder of Lindsell Train. His comments were published in a monthly disclosure to investors.
LSE shares remained a core holding in Lindsell Train’s UK portfolios because of “the rarity of such a globally significant data business in the context of the UK stock market,” he said. The fund house said it would not add further comment. The LSE said its previous market guidance on spending remained unchanged.
LSE shares have recovered this month, with analysts saying the higher costs had now been factored into market expectations.