By Charlie Conchie LONDON, Feb 11 (Reuters) – Activist investor Elliott Management has built a stake in the London Stock Exchange Group and is engaging with the financial data and analytics group to improve its performance, a person familiar with the matter told Reuters on Wednesday. Shares in LSEG turned slightly negative by 1430 GMT, having fallen by more than 35% in the past 12 months, including a selloff last week that wiped nearly $1 trillion off the value of global software stocks. Elliott's exact shareholding was unclear. UK rules require shareholders to disclose stakes above 3%. The fund has been in talks with LSEG to help drive an improvement in its performance, encourage a fresh share buyback and close margin gaps with rivals, the source said, confirming details first reported by the Financial Times. The FT reported that Elliott does not want LSEG to consider a full sale or spin-off of its stock exchange business. “LSEG maintains an active and open dialogue with our investors, while remaining focused on executing our strategy,” an LSEG spokesperson said. Elliott declined to comment when contacted by Reuters, which provides news for LSEG's news and data terminal Workspace and other products. The market was now waiting for Elliott to spell out exactly how it plans to refocus LSEG in a profitable way, said Dan Coatsworth, head of markets at AJ Bell in a note. DATA RACE LSEG has shifted its earnings mix in recent years towards data and analytics and away from stock exchange trading fees, helped by its 2019 acquisition of Refinitiv. By 2024, the capital markets division, which includes the stock exchange, generated 21% of group revenues, while data and analytics contributed nearly 50%. That has left LSEG battling concerns that rising competition and artificial intelligence will squeeze its income, a worry plaguing the broader software and services sector. The company is also having to contend with fewer initial public offerings as volatility and fund outflows have hindered listings, as well as competition from other centres like Amsterdam and the U.S. Despite the recent AI-driven software sell-off, active investor Lindsell Train, which owns 4% of LSEG stock, said in a note on Friday that LSEG's valuable data would defend it from AI startups. LSEG has been working at pace to embrace AI and distribute its licensed data through platforms including OpenAI's ChatGPT and Anthropic's Claude, as financial services firms race to adopt generative AI tools. It has also been rolling out products in collaboration with Microsoft after the U.S. firm bought a 4% stake worth $2 billion in 2022 as part of a 10-year partnership to make LSEG's data and analytics available through products like Azure, AI and Teams. Barclays analysts said in a note they felt the recent de-rating, in particular for LSEG, was overdone. Analysts at Goldman Sachs noted that only about 6% of group revenues, and an even smaller proportion of group earnings before interest, tax, depreciation and amortisation (EBITDA), from workflows for wealth management, investment management and investment banking business lines, were at risk from AI-powered tools for analysis. Some shareholders, however, welcomed Elliott's intervention. "When you've got your core business under attack from AI, you need to really focus strategy and I don't think that has been the case in the past few years," said Stephen Yiu, chief investment officer of Blue Whale growth fund, an LSEG shareholder. Yiu wants LSEG to spin off the London Stock Exchange, sell its stake in electronic trading firm Tradeweb and accelerate the roll-out of AI products with Microsoft, which he said had been too slow. Last year LSEG's CEO David Schwimmer said he would sell 20% of the group's post-trade services business and surprised investors with a 1 billion pound ($1.37 billion) buyback. In 2024 shareholders voted to nearly double Schwimmer's pay up to 13 million pounds as some UK fund managers backed calls to increase flexibility on paying top talent to stem a brain-drain. PREVIOUS CAMPAIGNS The call for change at LSEG by Elliott follows a failed attempt in 2017 by activist investor TCI to oust the data group's chairman. TCI cut its stake about a year later. Elliott is one of the world's busiest activist investors, and with assets under management of about $80 billion, it has built a reputation as a relentless activist. Its other campaign targets include oil major BP, Lululemon Athletica and PepsiCo, where it reached a settlement in December that will include cost cuts and other changes. It is also an investor in Anglo American. Since Elliott started building a stake in BP, the company has shifted spending from low-carbon projects to oil and gas while its chair and CEO, closely associated with previous chief Bernard Looney, have both been replaced. ($1 = 0.7305 pounds) (Reporting by Charlie Conchie and Indyk Samuel in London, and Pushkala Aripaka and Devika Nair in Bengaluru ; additional reporting by Shadia Nasralla, Iain Withers and Tommy Reggiori Wilkes; Editing by Rashmi Aich, Subhranshu Sahu, Toby Chopra, Anousha Sakoui and Elaine Hardcastle)
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