Hong Kong Exchanges bids $39 billion to take over London Stock Exchange
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[September 11, 2019] By
Huw Jones and Sinead Cruise
LONDON (Reuters) - Hong Kong Exchanges and
Clearing <0388.HK> has made an unsolicited $39 billion takeover approach
for the London Stock Exchange <LSE.L>, a proposal contingent on the LSE
ditching its acquisition of data company Refinitiv.
The move comes at a time of political turmoil in both Hong Kong and
London and is aimed at creating a global trading power better able to
compete with U.S. rivals such as ICE <ICE.N> and CME <CME.O>.
The LSE has long sought to bolster its presence in Asia and recently
launched a link scheme with HKEX competitor Shanghai.
"The board of HKEX believes a proposed combination with LSEG represents
a highly compelling strategic opportunity to create a global market
infrastructure leader," the Hong Kong exchange said in a statement on
Wednesday.
The LSE said it would review the proposal but added that it was
committed to and continued to make good progress on its planned
acquisition of Refinitiv from a consortium led by U.S. private equity
firm Blackstone <BX.N>.
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The approach by the Hong Kong company comes as Britain is set to leave
the European Union, a step some politicians fear could weaken its status
as a major financial centre.
HKEX, which already has a base in London as owner of the London Metal
Exchange, said it had played a key role in underpinning the City of
London's position as a pre-eminent global centre for metals trading.
"HKEX is fully committed to supporting and building the long term roles
of both London and Hong Kong as global financial centres," it added.
The proposed 31.6 billion pounds cash-and-share transaction would only
go ahead if the LSE's takeover of Refinitiv does not proceed, HKEX said.
Some analysts saw the Hong Kong offer as a defensive move to scupper the
Refinitiv deal and prevent the London exchange becoming a bigger rival
like CME and ICE.
HKEX, whose main shareholder is the Hong Kong government, said its
proposal represented a 22.9 percent premium to the LSE's closing stock
price on Tuesday.
After initially jumping more than 17 percent in reaction to the news,
LSE shares were trading 5.4 percent higher at 1205 GMT.
"It looks uncertain whether shareholders will accept the offer, given
that the Refinitiv deal is popular across the shareholder base for its
potential to transform the business and add value over the long-term,"
said Guy de Blonay, a fund manager at Jupiter, a top-25 investor in the
LSE.
The LSE announced in August that it had agreed to buy Refinitiv in a $27
billion deal aimed at transforming the exchange into a market data and
analytics giant.
Refinitiv declined to comment. Its majority shareholder Blackstone <BX.N>
had no immediate comment, while minority shareholder Thomson Reuters <TRI.TO>
declined to comment. Reuters news agency is a unit of Thomson Reuters.
The proposed takeover of the LSE comes at a time when Hong Kong is beset
by political upheaval. Pro-democracy protesters lit fires and vandalized
a metro station near the exchange on Saturday as increasingly violent
clashes with police move into their fourth month.
"This is not helpful. As a financial centre, trust and confidence are
important," HKEX boss Charles Li said of the protests last month, when
HKEX reported a 21% fall in trading fees in the first half of the year.
HKEX has been the world's largest listings venue in five of the past 10
years, splitting the crown over that decade with the New York Stock
Exchange, according to Refinitiv data.
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![](../images/091119PIX/busine33.jpg)
The name of Hong Kong
Exchanges and Clearing Limited is displayed at the entrance in Hong
Kong, China January 24, 2018. REUTERS/Bobby Yip/File Photo
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But this year it has fallen behind, raising $10.8 billion to the NYSE's $20.2
billion, with activity suffering as the political turmoil deepened. Last month,
Alibaba delayed plans for a $15 billion offering because of the unrest.
(GRAPHIC: LSE shares expensive even before HKEX offer,
https://fingfx.thomsonreuters.com/
gfx/editorcharts/GLOBAL-MARKETS/0H001QX5W8BR
/index.html)
For an interactive version of this chart, click here https://tmsnrt.rs/31gJ7W8
INVESTOR SOUNDS CAUTION
A top-10 shareholder in the LSE, who declined to be named in line with his
company's policy during potential mergers, sounded a cautious note about the
prospects of a successful takeover of the exchange.
"HKEX bought LME a few years ago to have a presence in the UK already, but
clearly they are trying to diversify away from their Chinese exposure, which is
why they are bidding now and not nine months ago," he said.
"Shareholders won't be rushed to make a decision as we like the Refinitiv deal,
he added.
A successful Hong Kong bid for the LSE would sabotage Blackstone's lucrative
deal to sell Refinitiv. It would also scupper plans to refinance some $13.5
billion worth of leveraged loans and bonds which were issued to pay for
Refinitiv with investment grade bonds issued by the LSE.
Prices of bonds issued by Refinitiv were only slightly lower in secondary
trading on Wednesday, implying continued investor confidence in the company's
tie-up with LSE.
The approach is the latest international attempt to acquire the LSE - Germany's
Deutsche Boerse <DB1Gn.DE> has failed three times in recent years, hitting
opposition from politicians and regulators.
LSE CEO David Schwimmer has said that big bang takeovers in exchanges are
difficult due to political concerns and in recent years the LSE has sought to
diversify away from basic trading and clearing to data and analytics.
The Asian exchange, however, said it was confident its proposal faced no major
regulatory hurdles due to little overlap in markets.
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HKEX said it has already begun discussions with certain regulators in Britain
and Hong Kong. "The board of HKEX believes that the two businesses are highly
complementary and as such, looks forward to working with the relevant
authorities to deliver a clear path to completion," it added.
Should the proposed takeover be successful, it is expected that key LSE
management would continue to operate LSE businesses, HKEX said.
The Hong Kong government threw its support behind the move.
"The government is glad to see HKEX's endeavour to enhance its core strength and
seek international expansion in accordance with its strategic plan," a spokesman
said.
The UK Treasury declined to comment on commercial matters.
HKEX said that under the terms of the deal, LSE shareholders would receive 2,045
pence in cash and 2.495 newly issued HKEX shares. It said it intended to apply
for a secondary listing of its shares on the LSE once the deal has gone through.
(Additional reporting by Jennifer Hughes and Alun John in Hong Kong and Yoruk
Bahceli and Abhinav Ramnarayan in London; Editing by Jason Neely and Pravin
Char.)
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