Subject to regulatory approval, DTCC would pay LCH.Clearnet's shareholders up to €10 a share, valuing the company at €739 million. Payment would be made through a combination of DTCC shares, shares in a new holding company for LCH, and a special LCH dividend.
LCH.Clearnet chief executive Roger Liddell will remain as chief executive of the new LCH holding company after the takeover, with DTCC chairman Donald Donahue as chairman. DTCC's European subsidiary, EuroCCP, will be rolled into LCH.Clearnet to form a single European clearing house.
More details should be announced in March 2009, DTCC said.
After the merger, DTCC said former LCH shareholders would face "mandatory rebalancing" of their holdings, to bring ownership of the merged company into line with its use - as is already the case for the user-owned DTCC. This would be completed within 18 months of the merger - and within three years, LCH.Clearnet would have moved to an "at-cost" pricing approach, already the case for DTCC.
The merger represents a potential 7-8% reduction in operating costs, DTCC said. It follows growing pressure for central clearing of over-the-counter derivative trades, with counterparty risk an increasing concern of market participants after the respective collapses of Bear Stearns and Lehman Brothers.