US activist investor Elliott Management is calling on London Stock Exchange Group (LSEG) to review its operations and carry out a £5 billion buyback. This is according to unconfirmed press reports circulating in the market.
Portfolio review and buyback
There was speculation last week Elliott had increased its stake in the UK data and stock exchange business. However, there has been no regulatory announcement to back up this suggestion.
According to Reuters, the US activist wants LSEG to ‘conduct a portfolio review’ while buying back £5 billion of shares. ‘While Elliott has not made specific requests on asset disposals, it sees the group’s 51% stake in Tradeweb Markets, as a potential route to generate cash’, added Reuters.
There has been talk in the past of LSEG selling off its UK stock exchange operations, which are now dwarfed by the data business. However, people close to Elliott insist the firm is not seeking a sell-off of the legacy exchange business.
Mostly, Elliott wants LSEG ‘to communicate more effectively that AI offers an opportunity rather than a threat’, say press reports.
Meanwhile, Stephane Boujnah, CEO of LSEG rvival Euronext, told Bloomberg he would not discuss asset purchases with Elliott. The group would, however, talk to LSEG if it was approached, said Boujnah.
We sympathise with all investors in LSEG, not just Elliott, over the de-rating of the shares. We also think management could do a better job of sticking up for itself and batting off the AI ‘threat’.
In fairness, it’s hard to see why LSEG needs to own exchanges for its other businesses to access the data. Selling off the UK operations may be beyond the pale for many, but there could be buyers for Tradeweb.
As for buying back £5 billion worth of shares, we would make the point buybacks add no economic value. Earnings per share and the stock price increase because there are fewer shares in issue, pure and simple.
That said, on a CAPE (cyclically adjusted PE) basis LSEG is cheaper than it has been for over a decade. Whether buying back shares is better than investing to grow the business is up for debate though.
