A $58 billion surprise takeover bid for the London Stock Exchange (LSE) by Asian rival Hong Kong Exchanges and Clearing (HKEX) has been rejected as a “significant backward step” with “fundamental flaws”.
The board of Europe’s largest stock exchange last week announced its response to HKEX’s unsolicited approach in a stinging letter which “unanimously rejected” the offer as being of little strategic merit and lacking in strong commercial rationale.
It said ongoing political upheaval in Hong Kong could make any deal unattractive to shareholders before noting that HKEX’s offer price significantly undervalued the LSE.
HKEX’s relationship with the Hong Kong Government would also “complicate matters”, making it “highly uncertain” that necessary approvals to such an offer would be obtained.
HKEX’s plan to take over the 321-year old UK institution was part of a mission to reinforce its position as the key connection between mainland China, Asia and the rest of the world.
It included the introduction of an 18-hour trading day which HKEX chief executive Charles Li claimed was a vote of confidence in London’s financial prowess as the country faces a departure from the European Union.
“Bringing HKEX and LSE together will redefine global capital markets for decades to come … together, we will connect east and west, be more diversified and be able to offer customers greater innovation, risk management and trading opportunities,” Mr Li said on announcing the takeover last week.
“A combined group will be strongly placed to benefit from the dynamic and evolving macroeconomic landscape, whilst enhancing the long-term resilience and relevance of London and Hong Kong as global financial centres.”
Had it received the go ahead, HKEX’s move could have created a global exchange powerhouse and the world’s third largest behind the New York Stock Exchange and Nasdaq in terms of the value of companies listed on those markets.
It could have also boded well for Chinese companies looking to raise capital overseas through the issuance of shares, bonds and other financial products in the global market.
HKEX responded to LSE’s rejection, saying it “continues to believe the proposed combination represents a highly compelling strategic opportunity”.
While HKEX may have seen its bid for LSE as a potential game-changer for local markets, the LSE wasn’t as easily convinced and said it would proceed instead with a proposed acquisition of global financial markets data provider Refinitiv Holdings Ltd.
Based in London, Refinitiv provides information, insights and infrastructure to more than 40,000 corporate clients in over 190 countries.
It is the biggest customer for independent news and content supplied from Reuters News under a 30-year contract signed last year to give clients continuous access to information and tools to track markets, assess business risks and drive decision-making.
LSE announced the $39 billion acquisition last month to increase its presence in the US and allow it to expand into Asia and emerging markets.
The exchange said it would pay for Refinitiv by issuing $21.2 billion in new shares and would take on $18.2 billion of existing debt.
It would also gain Refinitiv’s majority stake in the listed and fast-growing bond trading platform Tradeweb as well as outright ownership of currency trading platform FXall.
The combined group would have annual revenues of more than $10.8 billion.
LSE chief executive David Schwimmer said the Refinitiv acquisition would be “transformational”.
“[This] is a rare and compelling opportunity to combine two world-class businesses and create a global financial infrastructure leader,” he said.
Ongoing terms of the acquisition proposal require LSE to avoid potential counter offers for Refinitiv or its own business.
HKEX’s offer for LSE was conditional on LSE terminating the Refinitiv deal.
Mr Li claimed HKEX’s proposal was superior as it would allow the combined group to “benefit from growing links between China’s capital markets and the rest of the world”.
HKEX’s takeover bid continues a trend of UK firms being targeted by overseas investors.
In August, Hong Kong’s richest family – led by business magnate and world’s 30th richest person Li Ka-shing – paid $4.9 billion to acquire the 220-year old British pub chain Greene King.
Greene King is listed on the LSE and its shares jumped more than 50% on news of the deal.
Ailing holiday group Thomas Cook also last month agreed to sell a majority stake to Chinese firm and largest shareholder Fosun International in an attempt to rescue itself from certain collapse.
And, yesterday, shareholders of British aerospace and defence company Cobham voted in favour of a $7.2 billion takeover by a US private equity firm.
Failed LSE takeovers
Since 2000, the LSE has been the target of seven failed takeovers.
The most recent was in 2017, when a $38 billion merger with German rival Deutsche Börse was blocked by the European commission.
It was the third failed attempt at a merger between the two companies after previous setbacks in 2000 and 2005.