Euronext is to buy Borsa Italiana from London Stock Exchange (LSE) for 4.3 billion euros ($5.1 billion) in cash, the companies said on Friday, in a major expansion of the French operator’s network of European trading platforms.

LSE entered exclusive talks with Euronext last month after the Paris bourse owner saw off competition from Deutsche Boerse and Swiss rival SIX.

The deal could bring LSE a step closer to winning approval for its $27 billion purchase of data provider Refinitiv, which is 45% owned by Thomson Reuters, the parent company of Reuters News. LSE put Borsa up for sale to alleviate the European Commission’s concerns about its control over the European bond market.

While LSE said it would have preferred to keep its Italian arm, it will bank a significant profit on the 1.6 billion euros it paid in 2007 when buying Borsa.

For Euronext, which operates bourses in Paris, Amsterdam and Dublin among others, the deal will bulk up its equity operations, with the combined group operating exchanges with more than 1,800 listed companies and an aggregate market value of around 4.4 trillion euros.

Borsa’s bond trading platform MTS will also give Euronext its first foray into fixed income trading. “Euronext will significantly diversify its revenue mix and its geographical footprint by welcoming the market infrastructure of Italy, a G7 country and the third largest economy in Europe,” Euronext CEO Stephane Boujnah said in a statement.

According to Jeffries analysts, the deal values Borsa at 16.7 times 2019 EBITDA earnings before synergies versus the 15.5 times average for recent market infrastructure mergers and acquisitions “which we think looks reasonable as exchanges of this size and quality rarely come to market”.

However it will be a big deal for the French market operator, which has a market value of around 7 billion euros, to swallow. It plans to issue 1.8 billion euros in debt and raise 2.4 billion euros in new equity to fund it. Its share price was down 3% and LSE’s up 0.4%.

“Overall, higher synergies coming at a higher price and a bigger rights issue than we expected,” Credit Suisse analysts said in a note.

Euronext said the transaction was expected to be immediately accretive to its adjusted earnings per share before synergies. Based on its 2019 financials, the combined group would have generated 1.3 billion euros in revenue.

The sale of Borsa is politically sensitive in Italy due to its ownership of MTS, which handles trading of Italy’s 2.1 trillion euro ($2.5 trillion) government bond market.

To secure the Italian government’s backing, Euronext has teamed up with state agency Cassa Depositi e Prestiti (CDP) and Italy’s biggest bank Intesa SanPaolo, who will subscribe to 700 million euros of Euronext’s equity issue.

The sale is contingent on the European Commission formally stating it will only approve LSE’s Refinitiv deal if all or part of Borsa Italiana is sold.

“We believe the sale of the Borsa Italiana group will contribute significantly to addressing the EU’s competition concerns,” LSE Chief Executive David Schwimmer said in a statement.

Goldman Sachs, Morgan Stanley and Barclays were among the advisors to LSE, Lazard advised CDP, while Mediobanca and JP Morgan helped Euronext.

Meanwhile, Britain’s economy struggled to grow in August, setting back its recovery from the coronavirus lockdown, and Finance Minister Rishi Sunak was due to announce more help to slow a rise in jobs losses as a second wave of COVID-19 infections hits.

Gross domestic product rose by 2.1% from July, official data showed, not even half the median forecast in a Reuters poll of economists and the slowest increase since the economy began to recover in May from a record slump.

Much of what growth there was in August was down to a one-off government restaurant subsidy programme.

Finance minister Rishi Sunak was due to announce later on Friday a plan to support jobs in businesses that may be ordered to close to slow a resurgence of COVID-19 infections. Economists said the data also raised the chance of more stimulus from the Bank of England.

“The sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels,” Suren Thiru, head of economics at the British Chambers of Commerce said.

“The increase in activity in August largely reflects a temporary boost from the economy reopening and government stimulus, including the Eat Out to Help Out Scheme, rather than proof of a sustained ‘V’-shaped recovery.”

Reuters