The London Stock Exchange confirmed earlier Thursday it will acquire indexing giant Russell Investments from Northwestern Mutual Life Insurance for $2.7 billion in cash.
Northwestern Mutual’s efforts to sell Russell date back to early this year. Last month, L.S.E. confirmed it was in exclusive talks t acquire Russell. In late January, Pensions & Investments reported, citing sources, private equity firms KKR & Co., Apollo Global Management LLC, Hellman & Friedman LLC, Carlyle Group and Genstar Capital could also be interested in Russell. It was later reported that private equity shops Bain and Blackstone were also among the interested suitors for Russell Investments. [Russell Draws Interest From Private Equity Suitors]
While private equity firms and other index providers appeared eager to acquire Russell, the deal by L.S.E. offers clear synergies. The combination of Russell’s index business with L.S.E.’s FTSE indexing unit creates one of the U.S. index providers for exchange traded funds. Combined, there are $9.2 trillion in global assets benchmarked to Russell and FTSE indices.
Several of the largest international ETFs that trade in the U.S. are benchmarked to FTSE indices including the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the largest emerging markets ETF by assets, and the Vanguard FTSE Europe ETF (NYSEArca: VGK). The iShares China Large-Cap ETF (NYSEArca: FXI), the largest China ETF, also tracks a FTSE index.
Russell is in the index provider for large ETFs such as the $25.1 billion iShares Russell 2000 ETF (NYSEArca: IWM) and the $6 billion iShares Russell Midcap Value ETF (NYSEArca: IWS). [LSE May Only Want Russell’s Index Biz]
L.S.E. is also taking on Russell’s asset management business, which has $256 billion in assets under management. U.K.-based L.S.E. said it will review how Russell’s asset management business fits with its existing operations.
There was previous speculation that Northwestern Mutual would only sell Russell in whole, not break the asset management and indexing businesses apart. There has also been chatter that L.S.E. could spin-off Russell’s asset management operations in the future.
The deal is expected to generate cost savings of $78 per year by the end of the third year. Prior to the deal, over 100 U.S.-listed ETFs tracked FTSE indices.
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of IWM.
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