The sellers in a GBP 2bn block trade in London Stock Exchange Group [LON:LSEG] increased the deal's size to 28m shares to get an MSCI index reweighting and encourage passive money flows in aftermarket, two sources close to the deal said.
The 23m share trade was covered quickly after launch on the evening of Tuesday, 7 March, and strong demand meant there was a possibility of an upsize, both sources said. While the sellers were keen not to drown the market in paper, a small upsize would bring the deal to around 5% of the company, which is the trigger for a speedy reweighting in the MSCI benchmark indices. That helped persuade them to go for it, both sources said.
Reweighting in the MSCI index means passive accounts, which do not participate in blocks, would likely jump onto the stock quickly the following day to match its larger weighting in the index, given the enhanced free float, one of the sources added.
Shares were trading at around GBP 75 apiece on the morning of Wednesday, 8 March, around 5% above the issue price of GBP 71.50, which was a 4% discount to the previous close.
Both sources said they suspected some passive buying was driving the stock higher, as had some investors lower down the book of around 180 lines who had not been allocated as much as they wanted, one added.
The 28m sale is worth around 5.1% of LSEG. A 4% discount on a 5.1% stake sale represents a liquidity cost of around 0.8x under ION Analytics proprietary Price of Liquidity model, tighter than average trade last month, and a strong result for the consortium of sellers: Blackstone Group [NYSE:BX], Canada Pension Plan Investment Board (CPPIB), Thomson Reuters [NYSE:TRI] and GIC.
The consortium faces a 90-day lock-up on the remaining 38.1m shares it is allowed to sell before the end of January 2024, under the terms of an agreement linked to LSEG’s purchase of Refinitiv.
Well-flagged trade
The tight pricing was a strong indicator of an equity investor base that is looking for well-flagged opportunities in highly liquid stocks.
The deal in LSEG was flagged by this news service’s weekly column ECM Pulse at the end of January as a possible 2023 mega block. With LSEG’s results last week, the rationale for the sellers to start the disposal process once 4Q22 reporting blackouts were over was clear.
Both sources said there was a heavy amount of reverse demand for the deal, particularly from long-only investors in North America. To accommodate them, the deal bookrunners ran a two-day wall-cross so those investors could get the internal approvals needed to participate in the trade.
Three of the top five investors in the book were US long-onlies, one of the sources said.
The GBP 2bn deal in LSEG follows other billion dollar-plus blocks in Heineken NV [AMS:HEIA] and Heineken Holding NV [AMS:HEIO], as well as a sell-down in BNP Paribas [EPA:BNP] by the Belgian government last week.
There are several other trades in the works, both sources added, although one said some issuers were waiting for shares to hit a certain price.
But with US markets selling off after hawkish comments form Fed Chair Jerome Powell yesterday and with the market less confident about next week’s meeting of the Federal Open Markets Committee (FOMC) following negative US inflation data, sellers might have to be careful not to miss a window.
Barclays, Citi, Goldman Sachs and Morgan Stanley acted as global coordinators on the deal.
Canada Pension Plan Investment Board (CPPIB) declined to comment on this piece. Blackstone Group, Thomson Reuters and GIC did not respond to requests for comment by the time of publication.
