London Stock Exchange finds £450million to take over the FTSE

By Ben Laurance for MailOnline
Updated: 12:20 EDT, 13 December 2011

The London Stock Exchange is paying £450million to take full control of FTSE International, the body that draws up thousands of indices measuring prices of shares, bonds and derivatives around the world.

The LSE already owns 50 per cent of FTSE, and is now buying the other half from education and publishing group Pearson, best known in Britain as the company behind the Financial Times.

News of the deal knocked 5 per cent off the LSE’s share price: investors fear the group has overpaid to secure full ownership of the FTSE business.

Taking stock: Exchange chief Xavier Rolet has seen shares drop by 5 per cent since the deal was announced

LSE shares were changing hands at 780p last night, down 40p on the day. They were also hit by worries that its Italian clearing-house operation could face potential losses if Italian banks start to go under.

The LSE appears to have paid a high price to secure full ownership of FTSE: the price is more than 22 times operating earnings before interest, tax and depreciation. But FTSE is a fast-growing business, with sales and operating profits having increased by 22 per cent a year since 2006.

The LSE yesterday promised that ‘the governance and independence of FTSE index products will be maintained’. The move on FTSE comes at a sensitive time for the group.

It is about to publish the results of a consultation exercise on the conditions that companies should meet if they are to claim membership of the FTSE 100.

It is understood that the majority of banks, investors and advisers sounded out by FTSE believe companies should be allowed to be part of the index only if at least 25 per cent of their shares are freely available to be traded.

Critics say that tightening up the rules could force companies to leave London – which would clearly hit the LSE. But the LSE insists it will not interfere with the work of the committees that draw up rules for setting indices.

- Pearson's long-serving chief executive Marjorie Scardino yesterday pocketed more than £572,000 by selling part of her stake in the firm. Her sale of 50,000 Pearson shares leaves her with a holding of 1.35million, worth more than £15million.