LSE selling Russell Investments for $1.15 bn (£752 mn)

Shares in London Stock Exchange dropped on Friday after announcing how much it is selling its Russell Investments.

Many investors believe the selling price is too low.

US private equity group TA Associates will be acquiring the asset management operation for $1.15 billion (£752 million).

LSE is set to receive an initial cash payment of $1 billion and four annual cash payments which total $150 million – beginning December 2017. After transaction-related expenses and tax LSE said that it expects to receive $920 million.

But the deal failed to impress investors, with LSE shares dropping 1.2 per cent to £24.21 at the open on Friday.

The London Stock Exchange Group decided to offload the business and focus on financial markets infrastructure.

“This transaction brings together a global asset manager with two of the most experienced private equity firms with significant asset management expertise,” said Len Brennan, chief executive of Russell Investments.

RBC Capital Markets said in a note: ‘Given management’s comments on strong demand for the asset, we – and the market – expected a bit more in terms of gross proceeds, and we believe the shares may register some disappointment.’

Numis Securities lowered its price target for LSE from 2,500p down to 2,450p, but kept a hold rating on the stock.

Numbs Securities said: ‘Although the gross figure is in line with what we estimate LSE originally paid for it late last year ($1.1bn), the net value is around 35 per cent below what we are currently valuing it at ($1.4bn) and well below the figures that were being rumoured in the press (up to $1.8bn).’

Meanwhile, Credit Suisse decided to keep an outperform rating on LSE shares:

“While the net sale proceeds of $920m are modestly below the low end of consensus expectations ($1.0-1.5bn), we think the deal represents the best balance between maximizing shareholder value and minimizing execution risk. We believe it was imperative for LSE to conclude a deal swiftly following press reports that attempts to sell the business to other parties had stalled.”