LSE Group rises at open as Microsoft takes 4% stake through 10-year partnership

By Geoffrey Smith 

Investing.com -- Shares in London Stock Exchange Group (LON:LSEG) rose 4.5% at the open on Monday in London, after the group said Microsoft (NASDAQ:MSFT) will take a stake of 4% in the exchange operator as part of a new strategic partnership.

Microsoft's investment comes in return for a massive commitment to upgrade LSE's cloud-based services, which will see the exchange group spend a minimum of £2.3 billion (£1=$1.2205) over 10 years on cloud services provided by Microsoft's Azure Purview and Azure Synapse businesses. 

Between £250M - £300M of that will be spent over the next three years, which will take between 50 and 100 basis points off the group's operating margin before interest, taxes, depreciation and amortization. 

The group said the heavy investment in data services will allow revenue to grow "meaningfully" over time, allowing it to offer a range of new products. 

"Bringing together our leading data sets, analytics, and global customer base with Microsoft's comprehensive and trusted cloud services and global reach creates attractive revenue growth opportunities for both companies," said LSE Group Chief Executive David Schwimmer in a statement. "This strategic partnership is a significant milestone on LSEG's journey towards becoming the leading global financial markets infrastructure and data business."

Microsoft will buy its stake from the Blackstone/Thomson Reuters consortium that had accepted LSE stock as payment for its Refinitiv data business in 2021. The consortium had at the time agreed not to sell any shares until January 2023. The emergence of Microsoft as a buyer for the shares thus removes an overhang that had weighed on LSE stock in recent weeks.

The companies didn't say how much Microsoft will pay for its stake, but at Friday's closing price, a 4% stake in LSE was worth some £1.7B.  

The deal comes only days after one of Microsoft's more ambitious M&A moves, its bid for videogames publisher Activision Blizzard (NASDAQ:ATVI), was hit by an antitrust lawsuit from the U.S. Federal Trade Commission. The partnership with LSE, while needing regulatory clearance, is unlikely to face such hurdles, given that there will be no change of control.  Azure's Executive VP Scott Guthrie is expected, however, to become a non-executive director of LSE.

By 03:20 ET (08:20 GMT), LSE stock was up 4.5%.