Microsoft acquires 4% of the shares in the London Stock Exchange

DEC 12 (Reuters) – Microsoft (MSFT.O) is acquiring a 4% stake in London Stock Exchange Group (LSEG.L) in a 10-year commercial deal to migrate the exchange operator’s data platform to the cloud. The British company announced this on Monday.

It’s the latest sign of deepening ties between financial services firms and a handful of big global cloud companies including Microsoft, Google (GOOGL.O), Amazon (AMZN.O) and IBM (IBM.N) that have prompted regulators to do so take a closer look at the bindings.

Microsoft has long-standing ties to LSEG, but the exchange group’s chief executive officer, David Schwimmer, said they began talks about closer ties about a year ago.

“It’s a long-term partnership. In terms of the products we will build together, I would expect our customers to see the benefits of those 18 to 24 months ahead and we will continue to build from there,” Schwimmer told Reuters.

Regulators have expressed concern about financial firms’ over-reliance on too few cloud providers, which could disrupt the entire sector if one provider fails.

The European Union just passed legislation introducing safeguards for cloud providers in financial services, and the UK will follow suit.

“You should assume that we don’t like to surprise our regulators,” Schwimmer said when asked if the LSEG made sure regulators were on board.

LSEG said the connection with Microsoft is a partnership to take advantage of “consumption-based pricing” and not a traditional cloud deal.

“We will continue to adhere to our multi-cloud strategy and work with other cloud providers,” said Schwimmer.

The deal wasn’t about savings from offloading operations to the cloud, but about meaningful incremental revenue growth as new products roll out over time.

“This feels like an important milestone in LSEG’s journey toward an information solutions alignment, even if there is a lack of ‘strong’ details of revenue growth,” Jefferies analysts said.

As part of the agreement, LSEG has committed to a minimum cloud-related spend with Microsoft of US$2.8 billion over the life of the partnership.

According to Microsoft, the foundation of the partnership will be the digital transformation of LSEG’s technology infrastructure and Refinitiv platforms into the Microsoft Cloud.

“The initial focus will be on providing interoperability between LSEG Workspace and Microsoft Teams, Excel and PowerPoint with other Microsoft applications and a new version of LSEG’s Workspace,” the US company said.

LSEG shares are up 4% in early trade.

LSEG bought Refinitiv for $27 billion from a consortium of Blackstone and Thomson Reuters, making the exchange the second-largest financial data company after Bloomberg LP.

LSEG has made “good progress” on its program to deploy its cloud-based data platform since completing its acquisition of Refinitiv in January 2021, it said in a statement.

Microsoft will buy LSEG shares from the Blackstone (BX.N)/Thomson Reuters (TRI.TO) consortium, the exchange operator announced.

Thomson Reuters, which owns Reuters News, has a minority stake in LSEG following the Refinitiv deal.

The Microsoft acquisition is expected to close in the first quarter of 2023.

Reporting by Yadarisa Shabong in Bengaluru; Edited by Nivedita Bhattacharjee, Jane Merriman and Louise Heavens

Our standards: The Thomson Reuters Trust Principles.

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