LSE Buys Russell Investments for $2.7 Billion

The acquisition is expected to bolster the London Stock Exchange’s index business and help establish its presence in the US markets.

The London Stock Exchange (LSE) has struck a deal to purchase Russell Investments for $2.7 billion from Northwestern Mutual Life Insurance Co. 

Buying Russell’s index and investment management business is expected to help LSE launch into the US markets and establish itself as one of the world’s biggest index providers.

“The acquisition of Russell is another significant milestone for [LSE],” Xavier Rolet, chief executive of LSE, said in a statement. “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.”

The company announced that the deal would bring together $9 trillion in benchmarked assets—over $5 trillion from Russell and $4 trillion of equities from LSE-owned index operator FTSE—creating a “[number] two player in US-listed exchange-traded funds” comparable in scale with MSCI.

“With this acquisition we are strongly positioned for the changing dynamics in the global indices market with a best in class offering, which we believe will help deliver outstanding returns for our shareholders,” Rolet said.

Len Brennan, president and CEO of Russell, also said the firm was looking forward to joining forces and creating a powerful index presence: “The combination of our index business with FTSE creates a truly global index leader, with a highly complementary fit of products and distribution capabilities and a unique position as a leader in major domestic market benchmarks as well as international equities.”

LSE announced it was looking forward to growing its investment management business, particularly capitalizing on Russell’s expertise in multi-asset solutions and passive strategies. Through an extensive review of the Seattle-based firm’s asset management business, Rolet said LSE hopes to “determine [Russell’s] fit with the group” and preserving its focus on client service, fund performance and management, and employee stability. The firm has $256 billion in assets under management.

“LSE and Russell are two of the most highly respected financial services firms in the world, and this joining of the two organizations offers many strategic benefits,” Brennan said. “Russell’s investment management business has been a pioneer in innovation in the areas of passive management and smart beta and incorporating such strategies into our multi-asset solutions, and we are committed to maintaining the highest standards of client continuity and service.” 

Brennan will remain chief of Russell and will join LSE’s executive committee upon the deal’s completion.

The exchange said it plans to raise $1.6 million of the purchase price through the net proceeds of the rights issue and will finance the remaining price from existing and new bank debt. It also said it expected to see $78 million in annual cost savings within three years following the deal.

The acquisition is expected to be finalized by the end of 2014 pending shareholder approval, LSE said. 

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