In Depth

Hong Kong stock exchange offers to buy LSE for £32bn

Bid for London Stock Exchange met with concern over Hong Kong’s ties to Beijing

The City of London reeled yesterday as news emerged that Hong Kong’s main stock exchange had made an unsolicited £32bn bid for the London Stock Exchange.

Hong Kong Exchanges and Clearing said in a statement that combining the two exchanges would bring together “the largest and most significant financial centres in Asia and Europe”.

The company’s chief executive, Charles Li, said the deal would “redefine global capital markets for decades to come... Together, we will connect East and West, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities.”

Sky News reports that the “tie-up would create the world’s third largest exchange operator in the world after ICE and CME Group and, for HKEX, would represent a significant diversification away from China that might go some way to calming the nerves of its stakeholders in the wake of the turmoil in Hong Kong this summer.”

The news was greeted with caution in the UK. The Treasury released a statement to say: “The London Stock Exchange is a critically important part of the UK financial system, so as you would expect, the government and the regulators will be looking at the details closely.”

The LSE confirmed it had received an “unsolicited, preliminary and highly conditional” offer from its Hong Kong rival, saying an announcement would be made in “due course”.

Commentators speculate that the timing of the bid can be put down to the LSE’s recent £27bn bid for financial data provider Refinitiv, a move intended to bring the LSE into competition with larger rivals in financial data, namely Bloomberg, and in the financial sector, to take on global juggernauts such as Intercontinental Exchange and CME Group.

Once the LSE has completed the move for Refinitiv, it will be out of reach for any competitor to take over.

“HKEX’s bid therefore depends on LSE shareholders rejecting the Refinitiv takeover,” Reuters explains. “The Hong Kong exchange’s offer of 83.61 pounds per LSE share is enough to make them think twice. That is 23% above LSE’s closing price on Tuesday, and a stonking 47% more than the shares were worth before news of the Refinitiv deal broke in July.”

The Financial Times reports that the London Stock Exchange is poised to reject the approach: “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.”

HKEX chief executive Charles Li insisted the LSE offer was not “hostile”, telling reporters: “We are openly expressing our admiration for the city of London and LSE so that we give all the stakeholders the opportunity to openly evaluate our transaction and conclude it is a compelling transaction.”

Another notable aspect of the bid is that it comes at a time of escalated political tensions for both companies. In Britain, Brexit brings a great deal of uncertainty, while in Hong Kong, protests are entering their fourth month.

“At a time when anti-China feeling is already running high, HKEX will struggle to distinguish itself from the exchanges in mainland China, all of which are controlled directly by the Chinese Communist party,” reflects Jamil Anderlini in the Financial Times. “A CCP-controlled London Stock Exchange would surely be intolerable for any British government, no matter how chaotic or desperate Brexit Britain becomes.”

One top-ten 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. 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,” said the investor.

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