Hong Kong Exchanges bids $39 billion to take over London Stock Exchange

[September 11, 2019]  By Huw Jones and Sinead Cruise

LONDON (Reuters) - Hong Kong Exchanges and Clearing has made an unsolicited $39 billion takeover bid for the London Stock Exchange <LSE.L>, an offer contingent on the LSE ditching its acquisition of data company Refinitiv.

The combination would help both exchanges compete better with rivals like ICE <ICE.N> and CME <CME.O> from the United States. 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.

In response to HKEX's announcement, the LSE said it was committed to and continued to make good progress on its proposed acquisition of Refinitiv.

The takeover bid by the Hong Kong company comes as Britain is set to leave the European Union, a step some politicians fear could weaken its large financial sector.

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 center for metals trading.

"HKEX is fully committed to supporting and building the long term roles of both London and Hong Kong as global financial centers," it added.

The proposed 31.6 billion pounds cash-and-share transaction would only go ahead if the LSE's proposed takeover of Refinitiv does not proceed, HKEX said.

The LSE announced in August that it has 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 bid for the LSE comes at a time when HKEX is beset by political turmoil. 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 center, trust and confidence are important," HKEX CEO 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.

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.

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.

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

"HKEX bought LME a few years ago so 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. "The share price reaction one hour after the approach says the market does not believe it will be successful."

Shares in LSE, which were trading more than 17 percent higher in reaction to the news at 0834 GMT, were trading 4.5 percent higher at 1010 GMT.

It is expected that key LSE management would continue to operate LSE businesses, HKEX said.

The Hong Kong 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 the takeover faced no major regulatory hurdles due to little overlap in markets.

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.

The Hong Kong government threw its support behind the takeover bid.

"The government is glad to see HKEX's endeavor 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.

HKEX said it intended to apply for a secondary listing of its shares on the LSE once the deal has gone through.

(Reporting by Huw Jones and Sinead Cruise; Additional reporting by Jennifer Hughes and Alun John in Hong Kong; Editing by Jason Neely and Pravin Char)

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