Dec 12 (Reuters) – Microsoft ( MSFT.O ) will take a 4 percent stake in London Stock Exchange Group ( LSEG.L ) as part of a 10-year business deal to migrate the data platform of the cloud exchange operator. the British company said on Monday.
It is the latest sign of deepening ties between financial services providers and a handful of big global cloud companies including Microsoft, Google ( GOOGL.O ), Amazon ( AMZN.O ) and IBM ( IBM.N ), which have prompted regulators to scrutinize the ties more closely.
Microsoft has longstanding ties to LSEG, but the exchange group’s chief executive, David Schwimmer, said talks about closer ties began about a year ago.
“It’s a long-term partnership. In terms of the products we’re going to build together, I would expect our customers to start seeing the benefits in those 18 to 24 months and we’ll continue to build from there,” Schwimmer told Reuters.
Regulators have expressed concern about financial firms’ over-reliance on too few cloud providers, given the disruption this could cause to the entire industry if one provider went down.
The European Union has just passed legislation introducing safeguards for cloud providers in financial services, and the UK is set to follow suit.
“I would have to assume that we don’t like to surprise our regulators,” Schwimmer said, when asked if LSEG has made sure regulators were on board.
LSEG said the tie-up with Microsoft was a partnership to reap the benefits of “consumption-based pricing,” and not a traditional cloud deal.
“We will continue to maintain our multi-cloud strategy and work with other cloud providers,” Schwimmer said.
The deal was not about savings by outsourcing cloud activities, but about significant revenue growth as new products come out over time.
“This looks like a key milestone in LSEG’s journey to focus on information solutions, even if there are no ‘significant’ revenue growth specs,” Jefferies analysts said.
As part of the agreement, LSEG has made a contractual minimum cloud-related spend commitment with Microsoft of $2.8 billion over the term of the partnership.
Microsoft said the foundation of the partnership will be the digital transformation of LSEG’s technology infrastructure and Refinitiv platforms in the Microsoft Cloud.
“The initial focus will be to provide interoperability between LSEG Workspace and Microsoft Teams, Excel and PowerPoint with other Microsoft applications and a new version of LSEG’s Workspace,” the US company said.
LSEG shares rose 4% in early trade.
LSEG bought Refinitiv for $27 billion from a consortium of Blackstone and Thomson Reuters, making the exchange the second-largest financial data company after Bloomberg LP.
LSEG has made “good progress” on its schedule for the delivery of its cloud-based data platform since the completion of its acquisition of Refinitiv in January 2021, it said in a statement.
Microsoft will buy LSEG shares from the Blackstone ( BX.N )/Thomson Reuters ( TRI.TO ) consortium, the exchange operator said.
Thomson Reuters, which owns Reuters News, has a minority stake in LSEG following the Refinitiv deal.
The Microsoft purchase is expected to close in the first quarter of 2023.
Reporting by Yadarisa Shabong in Bangalore; Editing by Nivedita Bhattacharjee, Jane Merriman and Louise Heavens
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