London Stock Exchange Group (LSEG) and Microsoft have entered into a new long-term strategic partnership to architect LSEG’s data infrastructure using the Microsoft Cloud, and to jointly develop new products and services for data and analytics. The partnership will build on the good progress made by LSEG on the integration of Refinitiv and enhance its position as a world-leading financial markets infrastructure and data provider.

With the Microsoft Cloud and its AI capabilities, the deal significantly advances LSEG’s strategy of building an efficient and scalable platform for its Data & Analytics business to deliver next-generation services for a range of customers across the financial markets value chain through improved workflow and greater flexibility.

Under the arrangements, LSEG’s data platform and other key technology infrastructure will migrate into Microsoft’s Azure cloud environment. Workspace, LSEG’s next-generation data and analytics workflow solution, will become interoperable with certain Microsoft applications and the companies plan to introduce innovative new cloud-based analytics services. LSEG and Microsoft have also agreed to explore the development of digital market infrastructure based on cloud technology, with a goal to transform how market participants interact with capital markets across a broad range of asset classes. Migration of regulated applications will be subject to applicable regulated entity board and regulator approval, prior to the relevant migration.

LSEG and Microsoft have established a governance structure that will be responsible and accountable for the commercial delivery of the programmes and the operational service delivery of the cloud infrastructure. This will include senior representation in joint workstreams across the different initiatives regularly reporting to the senior leadership of LSEG and Microsoft.

LSEG will provide further updates to LSEG investors on the progress of these programmes later in 2023.

Microsoft has agreed to purchase shares in LSEG that would result in Microsoft holding approximately a 4% equity stake in LSEG, such shares to be purchased from York Holdings II Limited and York Holdings III Limited, entities owned by certain investment funds affiliated with Blackstone, an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd, and by Thomson Reuters, the former Refinitiv shareholders.

In accordance with LR 9.6.17R of the FCA’s Listing Rules, LSEG notes that it has agreed to a limited variation of the lock-up arrangements contained in the Relationship Agreement entered into on completion of the Refinitiv transaction to enable the sale of these LSEG shares to Microsoft.

As a result of LSEG granting the lock-up waiver, the number of LSEG shares that the Blackstone/Thomson Reuters consortium will be able to sell between 30 January 2023 and 29 January 2024 will be unchanged and the number of LSEG shares that the Blackstone/Thomson Reuters consortium will be able to sell between 30 January 2024 and 29 January 2025 will be reduced by half of the number of shares sold to Microsoft. Under the terms of the Relationship Agreement, the lock-up ceases to apply after 29 January 2025. The share purchase will be subject to customary antitrust and regulatory approvals and is expected to complete in the first quarter of 2023.

Microsoft has entered into a separate agreement with LSEG pursuant to which Microsoft has agreed, in addition to customary standstill and orderly marketing arrangements, to be subject to a lock-up in respect of the LSEG shares purchased by it. This will restrict any sales of such shares during the first year following completion of the share purchase, after which Microsoft shall then be restricted from selling more than half of the acquired shares during the second year following completion of the share purchase.

The strategic partnership is expected to increase LSEG’s revenue growth meaningfully over time as the key workstreams are delivered.

LSEG and Microsoft have agreed to co-invest in the product development roadmap for the data platform, Workspace, and analytics initiatives. LSEG’s total incremental cash costs relating to the programmes from 2023 to 2025 are expected to be in the range of £250-300 million. Within this, LSEG expects incremental capex over 2023-2025 of approximately £100 million. The balance of the cash costs, which relate to one-off change costs, are expected to have a 50-100 basis points impact on EBITDA margin in the years 2023-2025.

In addition, as is customary under cloud infrastructure agreements, LSEG has committed to a minimum cloud-related spend with Microsoft over the life of the agreement, amounting to $2.8 billion (£2.3 billion). The amount reflects LSEG’s expected minimum cloud consumption, will be strongly weighted towards the second half of the period as consumption builds and is already factored into LSEG’s existing long-term cost projections either for cloud or for the legacy opex and capex it will replace over time.

Any additional spend LSEG incurs with Microsoft will be driven by the success of the strategic partnership, based on demand for LSEG’s data platform and other professional services.

For Listing Rules purposes, the gross assets related to the partnership are $500 million.