December 12 (Reuters) – Microsoft (MSFT.O) will take a 4% stake in the London Stock Exchange Group (LSEG.L) as part of a 10-year commercial agreement to migrate the exchange operator’s data platform to the cloud, the British company announced on Monday.
It’s the latest sign of deepening ties between financial services providers and a handful of major global cloud computing companies such as Microsoft, Google (GOOGL.O)Amazon (AMZN.O) and IBM (IBM.N)that prompted regulators to take a closer look at the links.
Microsoft has long-standing ties with LSEG, but the exchange group’s chief executive, David Schwimmer, said that about a year ago they began discussions about closer ties.
“It’s a long-term partnership. In terms of the products we will build together, I expect our customers to start seeing the benefits in those 18-24 months and we will continue to build from there,” Schwimmer told Reuters.
Regulators have expressed concern over financial firms’ overreliance on too few cloud providers, given the disruption this could cause across the industry if one provider fails. .
The European Union has just approved a law introducing safeguards on cloud providers in financial services, with Britain set to follow suit.
“You have to assume we don’t like to surprise our regulators,” Schwimmer said, when asked if LSEG made sure the regulators were on board.
LSEG said the tie-up with Microsoft was a partnership to reap the benefits of “consumption-based pricing,” 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 cost savings from outsourcing business to the cloud, but about significant incremental revenue growth as new products are rolled out over time.
“This looks like a key step in LSEG’s journey toward an information solutions-centric approach, even if ‘meaningful’ revenue growth details are lacking,” Jefferies analysts said.
As part of the agreement, LSEG has made a contractual commitment for minimum cloud-related spend 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 on the Microsoft Cloud.
“The initial focus will be on 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.
Shares of LSEG rose 4% in early trade.
LSEG bought Refinitiv for $27 billion from a consortium of Blackstone and Thomson Reuters, which made the exchange the second-largest financial data company after Bloomberg LP.
LSEG has made “good progress” on its cloud-based data platform delivery program since completing its acquisition of Refinitiv in January 2021, it said in a statement.
Thomson Reuters, owner of Reuters News, has a minority stake in LSEG following the deal with Refinitiv.
The purchase of Microsoft is expected to be finalized in the first quarter of 2023.
Reporting by Yadarisa Shabong in Bengaluru; Editing by Nivedita Bhattacharjee, Jane Merriman and Louise Heavens
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