Microsoft has agreed to buy a £1.5 billion stake in the London Stock Exchange Group as part of a 10-year strategic partnership.
Microsoft will acquire the 4 percent stake in LSEG from Blackstone, Thomson Reuters, Canada Pension Plan Investment Board and Singapore’s sovereign wealth fund GIC.
The merger would not only improve the data and analysis of the 300-year-old exchange, but also boost LSEG’s revenue growth “sensibly” over time as they develop new products together, the companies said on Monday.
The deal was “very, very different from just lifting assets and moving them to the cloud,” said David Schwimmer, chief executive of LSEG, drawing a contrast to many such deals that simply overhaul the customer’s existing IT infrastructure Replicate the platform of a big tech company. He described the alliance as “an important strategic partnership in which we develop products together and access markets together”.
Scott Guthrie, executive vice president of Microsoft’s cloud and AI unit, will take a seat on LSEG’s board of directors. The merger follows Google’s $1 billion investment in Chicago-based CME in November 2021 as part of a 10-year cloud computing deal, while Nasdaq and Amazon Web Services agreed on a similar partnership last year.
The deal comes as LSEG is under pressure to recoup its $27 billion acquisition of data and trading group Refinitiv. Schwimmer touted the 2019 deal as a way to transform the exchange into a global data and analytics company that could compete with Bloomberg, but integrating the business has been difficult.
Under the terms of the agreement, Microsoft will provide LSEG with data analytics and cloud infrastructure products leveraging its Azure, AI and Teams platforms. It will also use Teams, the messaging platform that Microsoft sells to businesses, to create a unified platform that combines financial data, analytics and collaboration tools.
“This is a fundamental shift in how financial market participants will interact with each other and with their data,” said Schwimmer, a former Goldman Sachs banker who has led the LSEG since 2018.
Shares of LSEG were up as much as 4 percent at the London open and closed up 3 percent at £76.26.
Ben Bathurst, an analyst at RBC Capital Markets, said the integration of teams could mean LSEG’s system “could now gain broader acceptance as a credible competitor to Bloomberg.”
The deal commits LSEG to spending £2.3bn on Microsoft over 10 years, but Schwimmer stressed the company will continue to work with other cloud computing providers. “We don’t want to surprise our regulators,” he said, adding, “It’s not about Microsoft being in control of LSEG.”
The two companies intend to leverage Microsoft’s machine learning capabilities to help investment groups create financial models.
Financial trading platforms have long been considered unattainable for cloud companies due to the high speed requirements. However, a number of new alliances underscore how this has changed as cloud capabilities have improved.
“The race to the cloud has accelerated through and after Covid,” said George O’Connor, an IT sector analyst at stockbroker Goodbody, describing it as an “arms race” between Microsoft, Amazon and Google to do business. “The stock insert underscores the sharp elbows at work,” he added.
Microsoft expects to generate $5 billion in revenue through the 10-year partnership. “This allows Microsoft to provide more vertical expertise than ever before,” said Judson Althoff, the US group’s chief commercial officer.