HKEX offer triggers scepticism over London bourse’s strategy and political obstacles
The Hong Kong bourse’s audacious £32bn bid for the London Stock Exchange faces rejection amid doubts about political risk and deal structure, according to people briefed on the offer.
The unsolicited bid on Wednesday from Hong Kong Exchanges and Clearing stunned investors in the LSE, one of London’s most high-profile financial institutions.
The LSE said it was committed to its own blockbuster deal, the $27bn acquisition of data and trading group Refinitiv. It is leaning towards rejecting the Hong Kong approach, two people close to the board said.
The proposal values LSE shares at £83.61 and in its offer document HKEX said it hoped to combine “the largest and most significant financial centres in Asia and Europe”.
The bid comes at a critical juncture for the global exchange industry as well as for Hong Kong and the UK politically. Exchange operators are increasingly shifting away from the core business of trading into supplying and monetising the data that is at the heart of markets.
The LSE’s Refinitiv purchase, which is awaiting shareholder approval, has invigorated dealmaking in the industry. Once complete, the LSE will be positioned to take on global heavyweights such as Intercontinental Exchange and CME Group.
Analysts cautioned that the political opposition that has historically derailed tie-ups between national exchanges was likely to be acute because of social unrest in Hong Kong.
The LSE also owns trading venues and clearing houses that play a major role as the plumbing of global capital markets. The LSE “is a critically important part of the UK financial system . . . as you would expect, the government and regulators will be looking at the details closely,” said a UK government spokesperson.
HKEX, which counts the Hong Kong government as its largest shareholder, is offering £20.45 in cash and 2.495 newly issued HKEX shares for each LSE share. After initially rising 16 per cent, LSE shares slipped back to finish at £72.14, a 6 per cent increase.
HKEX said the LSE could monetise market data in China and help London connect to China’s fast growing domestic capital market.
If the LSE accepts the offer, the deal would also give the Hong Kong group control of clearing house LCH, in which the London exchange has a majority stake.
One top 10 LSE shareholder said HKEX was “trying to diversify away from their Chinese exposure, which is why they are bidding now and not nine months ago”.
“Shareholders won’t be rushed to make a decision as we like the Refinitiv deal,” the investor added. “If this is an opening gambit by HKEX and they go 10 per cent higher, then it will be a case of what might happen in the short term to the LSE share price versus a five-year view on where the share price can go on a successful Refinitiv integration.”
The LSE, which is run by former Goldman Sachs banker David Schwimmer, said the proposal was “preliminary and highly conditional” adding that it would consider it.
The offer comes as the Hong Kong government grapples with an unprecedented political crisis that has triggered weeks of mass protests over the autonomy the former British colony will be able to maintain from Beijing. In the UK, voters are facing the prospect of a general election as Brexit continues to convulse the country.
If the bid proves successful, it would be by far the largest in HKEX’s history, but not the first time it had acquired a large London financial institution. In 2012, it paid £1.4bn for the London Metal Exchange.
“Bringing HKEX and the London Stock Exchange together will redefine global capital markets for decades to come,” said Charles Li, chief executive of HKEX. “Both businesses have great brands, financial strength and proven growth track records.”