(Adds CEO, analyst comment, more background, Breakingviews
link, and updates shares)
By David French, Anirban Sen and Pamela Barbaglia
Nov 30 (Reuters) - Business information provider S&P Global
Inc agreed on Monday to pay $44 billion in stock to
acquire IHS Markit Ltd in the year's biggest
acquisition that will create a new data powerhouse serving Wall
Street and the corporate world.
The deal raises the stakes in the consolidation sweeping the
fragmented financial information services industry, as companies
race to create one-stop shops to lure the biggest clients and
invest in artificial intelligence and machine learning.
The agreement comes after London Stock Exchange Group Plc's
$27-billion deal last year to acquire financial data
provider Refinitiv from buyout firm Blackstone Group Inc
and Thomson Reuters Corp, the parent of Reuters News.
It puts pressure on rivals such as Bloomberg LP,
Intercontinental Exchange Inc, Factset Research Systems
Inc and Moody's Corp to pursue similar moves.
Not all of them provide the same financial data, yet most of
them chase the same clients, from investment bankers and traders
to corporate executives and treasurers.
The combination of S&P Global and IHS Markit is bound to be
reviewed extensively by antitrust regulators given the scrutiny
that the London Stock Exchange's acquisition of Refinitiv
attracted, especially from the European Union. S&P Global and
IHS Markit said their businesses had very limited overlap, and
that they expected they would have the necessary regulatory
approvals to complete the deal in the second half of 2021.
S&P Global is a distant No. 3 by annual revenue behind
Bloomberg and Refinitiv, according to market research firm
Burton-Taylor. While the acquisition of IHS Markit, the No. 8
player, would not change that ranking, it would accelerate S&P
Global's growth.
"Scale matters because you can get more volume through the
same operational set. More customers, more products, more
innovation," S&P Global CEO Douglas Peterson told Reuters in an
interview.
The deal will combine S&P Global's credit ratings, market
intelligence businesses and stock and energy benchmarks with IHS
Markit's fixed income benchmarks and indices, bond pricing and
reference data, and information on the natural resources,
automotive and engineering sectors. It will enable the
distribution of IHS Markit products and services to S&P Global's
1 million desktop users.
The deal's stock exchange ratio of 0.2838 shares of S&P
Global shares for each IHS Markit share implies only a small
premium of 4.7%, based on Friday's closing share prices. Yet IHS
shares soared 10% to $104.45 on the news, as IHS shareholders,
who are set to own about a third of the combined company,
cheered the deal's targeted annual cash flow synergies of $680
million, to be achieved in five years.
S&P Global shares rose 1.7% to $347.41, giving the company a
market capitalization of $84 billion.
"One interesting aspect is the opportunity to create new
products from very valuable datasets in both S&P Global's bond
issuance and IHS Markit's fixed income pricing and valuation,
which could result in additional revenue synergies outside of
the obvious cross-selling opportunity," Jefferies analysts wrote
in a research note.
The companies said the merger will generate annual free cash
flow exceeding $5 billion by 2023, allowing them to invest more
than $1 billion in technological advances.
S&P Global became a standalone business in 2011, when its
parent McGraw-Hill separated it from its education business.
London-based IHS Markit was formed in 2016, when IHS, whose
businesses include data on automotive and technology industries,
bought Markit Ltd for around $6 billion.
Both companies have gained tens of billions of dollars in
value since then, underscoring the financial data sector's
growth.
Peterson will lead the combined company, which will be
headquartered in New York while IHS Markit CEO Lance Uggla will
be a special advisor for a year after the deal closes.
"The next steps will be to receive regulatory approvals both
in the U.S. and the EU, which we expect to take between six to
nine months, and receive approval by our respective
shareholders," Uggla said in the internal memo seen by Reuters.
A source familiar with the matter, speaking on condition of
anonymity to discuss internal deliberations, said S&P Global may
have to divest a part of IHS Markit's 'resources' division that
focuses on market pricing to secure regulatory approvals for the
deal. This includes overlap between S&P Global's energy and
commodities information service Platts and IHS Markit's oil
price information service Opis.
The overlap is small and any sale of parts of the Opis
business would not affect the profitability of the companies,
the source added.
M&A SURGE
Merger and acquisition activity touched a record high in the
third quarter, with more than $1 trillion worth of transactions,
mostly focused on coronavirus-resilient sectors such as
technology and healthcare, according to Refinitiv data.
The London Stock Exchange is in the final stages of securing
regulatory clearances for the acquisition of Refinitiv, which
has been through a long review process by the European Union's
competition commissioner.
Goldman Sachs acted as lead adviser to S&P, while Morgan
Stanley was leading the negotiations for IHS. Citi and Credit
Suisse also worked with S&P, while Barclays, Jefferies and
JPMorgan helped IHS.
(Reporting by Noor Zainab Hussain, Maria Ponnezhath, Shubham
Kalia in Bengaluru, Pamela Barbaglia in London and Greg
Roumeliotis in New York, Editing by Saumyadeb Chakrabarty, Arun
Koyyur and Nick Zieminski)