Microsoft is buying 4% equity stake in London Stock Exchange as part of its data cloud deal to jointly develop new products and services for data and analytics.
The tech group is buying the stake from York Holdings II Limited and York Holdings III Limited, entities owned by certain investment funds affiliated with Blackstone, an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd, and by Thomson Reuters, the former Refinitiv shareholders.
London Stock Exchange and Microsoft have agreed to co-invest in the product development roadmap for the data platform, Workspace, and analytics initiatives..
Satya Nadella, Chairman and CEO, Microsoft, said: “Advances in the cloud and AI will fundamentally transform how financial institutions research, interact, and transact across asset classes, and adapt to changing market conditions.
“Our partnership will bring together the industry leadership of the London Stock Exchange Group with the trust and breadth of the Microsoft Cloud — spanning Azure, AI, and Teams — to build next-generation services that will empower our customers to generate business insights, automate complex and time-consuming processes, and ultimately, do more with less.”
As part of the strategic partnership, London Stock Exchange and Microsoft have entered into a 10-year commercial agreement to migrate exchange’s data platform and other key technology infrastructure into the Microsoft Cloud.
With the Microsoft Cloud and its AI capabilities, the deal significantly advances LLondon Stock Exchang’s strategy of building an efficient and scalable platform for its Data & Analytics business to deliver next-generation services for a range of customers across the financial markets value chain through improved workflow and greater flexibility.
Under the arrangements, London Stock Exchang’s data platform and other key technology infrastructure will migrate into Microsoft’s Azure cloud environment.
This infrastructure plan will be the foundation for the product development programs outlined above and enable London Stock Exchange to build and run scalable applications to achieve faster speed to market and greater customer reach.
David Schwimmer, CEO of LSEG, said: “This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business, and will transform the experience for our customers.
“Bringing together our leading data sets, analytics, and global customer base with Microsoft’s comprehensive and trusted cloud services and global reach creates attractive revenue growth opportunities for both companies.
“We are delighted to welcome Microsoft as a shareholder. We believe our partnership with Microsoft will transform the way our customers discover, analyze, and trade securities around the world, and create substantial value over time. We look forward to delivering on that potential.”
At the same time, it will allow London Stock Exchange to align costs more directly to revenue streams, reduce operational complexity through the consolidation of multiple legacy technologies, and further strengthen resilience and security.
London Stock Exchange’s total incremental cash costs relating to the programs from 2023 to 2025 are expected to be in the range of £250-300 million. Within this, LSEG expects incremental capex over 2023-2025 of approximately £100 million. The balance of the cash costs, which relate to one-off change costs, are expected to have a 50-100 basis points impact on EBITDA margin in the years 2023-2025.
In addition, as is customary under cloud infrastructure agreements, London Stock Exchange has committed to a minimum cloud-related spend with Microsoft over the life of the agreement, amounting to $2.8 billion (£2.3 billion).
The amount reflects London Stock Exchange’s expected minimum cloud consumption, will be strongly weighted towards the second half of the period as consumption builds and is already factored into London Stock Exchange’s existing long-term cost projections either for cloud or for the legacy opex and capex it will replace over time.
