Borsa Italiana and London Stock Exchange Group to merge

The Boards of Borsa Italiana S.p.A. (“Borsa Italiana”) and London Stock Exchange Group plc (“London Stock Exchange”) today announce that they have entered into an agreement on the terms of a recommended offer to be made by the London Stock Exchange to the shareholders of Borsa Italiana. The merger of Borsa Italiana and the London Stock Exchange (the “Merger”) creates the leading diversified exchange group in Europe and the platform for additional strong growth on a European and global scale. As the European exchange leader in the listing and trading of equities and the leader in electronic trading of ETFs, securitised derivatives and fixed income products, the combined group will provide significant benefits for customers and shareholders.

The combined group will bring together two highly efficient and complementary businesses, coupling the strengths of Borsa Italiana in Italian cash equities, derivatives, securitised derivatives, fixed income products and efficient post-trade services with those of the London Stock Exchange in UK and international equities. It will capture the attractive macro-economic and market growth dynamics of Italian equities and bring together the best of the Italian and UK marketplaces. The combined group will be:

Europe’s leading equities business, with 48 per cent. of the FTSEurofirst 100 by market capitalisation and the most liquid order book by value and volume traded;
Europe’s leading market for electronic trading of ETFs and securitised derivatives; and
Europe’s leading fixed income market, through its interest in MTS.

Moreover, the combined group will operate:

The most advanced trading platform of any exchange; and the most efficient post-trade services in Europe.

The merger of Borsa Italiana and the London Stock Exchange will diversify the product and customer bases of the two exchanges. It will create cross-access opportunities and enlarge the liquidity pool available to listed companies thereby reducing their cost of capital. Together, they will leverage their highly compatible and broad range of skills to contribute to the growth of their marketplaces. This merger is the most important step yet for Borsa Italiana and the London Stock Exchange in realising their shared vision to be the world’s capital market.

Under the terms of the offer, Borsa Italiana shareholders will be offered 4.90 London Stock Exchange Group plc ordinary shares (“New Shares”) for each existing Borsa Italiana ordinary share (the “Offer”). Based on the London Stock Exchange Group’s closing share price of 1,387p and using the exchange rate of £1=€1.4815 as of 19 June 2007 (the day prior to the statement issued by the London Stock Exchange that it was in discussions with Borsa Italiana), the Offer values Borsa Italiana at £1,103 million (€1,634 million) and represents a value of €100.7 per Borsa Italiana share. Based on the same closing price and exchange rate, the combined group would be worth £3,900 million (€5,777 million).

The merger is subject to the conditions described in paragraph 13 below.

It is the intention of the parties to change the name of the combined group to reflect its international profile. Borsa Italiana and London Stock Exchange plc will remain separate legal and regulatory entities and will maintain their existing brands. The parties have held preliminary discussions with Consob and the FSA.

The structure will allow the exchanges’ distinct market identities and strong customer relationships to flourish while enabling customers to take advantage of the benefits arising from cross-market linkage and the greater scale, diversity and broader expertise of the combined group.

Notwithstanding the high levels of efficiency already achieved by the two companies, pre-tax cost synergies and other transaction-related cost savings comprising an equal split of IT and non-IT related savings are estimated to be £20 million (€29 million) annually, with the full run-rate being achieved in FY 2010.

Furthermore, given the highly complementary nature of the two businesses and the prospects for growth that underpin the transaction, approximately £20 million (€29 million) of annual revenue synergies are expected to be achieved in FY 2011. The combined group expects to derive revenue synergies from the following areas:

Creating attractive cross-market access opportunities via the operation of both markets on TradElect, the London Stock Exchange’s world-leading trading platform, and enlarging the liquidity pool available to listed companies;
Accelerating the development of the SME marketplace in Italy and other European markets;
Linking the two equity derivatives product offerings, thereby creating a larger liquidity pool for existing and new products;
Adding new bond products on to the MTS trading platform; and
Expanding Borsa Italiana’s highly efficient clearing services to other European markets.

In addition, a number of other growth opportunities will be available to the combined group, arising from a wide offering of ETFs, securitised derivatives and data products, from the launch of UK and pan-European derivatives and from the extension of post-trade services.

The transaction is expected to be earnings neutral to positive in FY 2008 and earnings accretive by at least 10 per cent. in FY 2009.

The Board of London Stock Exchange Group plc believes it will have more than sufficient support from its shareholders for the merger.

London Stock Exchange Group plc will be the holding company of the combined group and, in addition to its listing in London, intends to seek a listing on Borsa Italiana. The combined group will operate under a UK corporate governance structure with a unitary board comprising twelve directors. Seven of these will be nominated by the existing London Stock Exchange Group plc Board (including the Chairman and two executive directors of the London Stock Exchange Group). The Chairman and Chief Executive of Borsa Italiana and three directors who are prominent members of the Italian financial community will be proposed by the existing Borsa Italiana Board, and will sit on the Board of the combined group.

Angelo Tantazzi, currently Chairman of Borsa Italiana, will become Deputy Chairman of the combined group. Massimo Capuano will become Deputy Chief Executive of the combined group while remaining Chief Executive Officer of Borsa Italiana. Chris Gibson-Smith, currently Chairman of the London Stock Exchange Group, will be Chairman of the Board of the combined group, and Clara Furse, currently Chief Executive of the London Stock Exchange Group, will be Chief Executive of the combined group. Massimo Capuano will be responsible for the integration of the combined businesses.

The Board of Directors of Borsa Italiana will comprise approximately twelve directors. London Stock Exchange will designate two of the five executive directors and one of the seven non executive directors. -London Stock Exchange