The London Stock Exchange will not, at least for the foreseeable future, be gobbled up by its peer from Hong Kong. Hong Kong Exchanges and Clearing (HKEX), the owner of the Hong Kong Stock Exchange, home to the Hang Seng index, yesterday reluctantly admitted defeat after its unsolicited acquisition approach received no encouragement from London.
A short statement issued by HKEX read that the company believed the realisation of a combined entity would have been
“strategically compelling” and was “disappointed that it has been unable to engage with the management [of the London Stock Exchange] in realising this vision”.
The basis of the preliminary offer made to the LSE was a £83.61 cash-and-shares deal contingent on the exchange manager behind the London Stock Exchange dropping its own $27 billion (£21.98 billion) bid to buy financial data business Refinitiv. LSE’s share price is currently sitting at £69.94, having dropped 5.75% this morning on the news. The stock price closed trading yesterday at £74.62, having gained from a little over £70 after news of the takeover bid broke last Wednesday.
The limited scale of the share price gain reflected the fact that the deal looked like a long shot from the beginning, not least because of concerns around such an important piece of the national financial infrastructure potentially falling under the sphere of Chinese influence. Hong Kong has retained special administrative zone status since it was handed back to China by the UK in 1997 and has different governing and economic systems that are separate from those of mainland China.
The ‘One Country, Two Systems’ dichotomy in place between Hong Kong and China isn’t due to expire until 1947 but that would still mean much greater Chinese government influence at that point. And it is far from guaranteed, particularly in the context of China’s growing willingness to assert its power and the currently volatile political situation in Hong Kong with protests for democracy, that mainland China won’t chose to tear up that agreement. Should China move bring forward Hong Kong’s integration into mainland China’s systems, would the UK or anyone else really be in a position to practically do much about it? China’s now integral role in the global economy would make even the imposition of meaningful trade sanctions difficult.
As well as the London Stock Exchange, LSE Group owns the Turquoise European equities trading platform, LCH, the world’s largest derivatives clearing house, Milan’s Borsa Italiana and the FTSE and Russell stock market indices. It plays an important role in the markets infrastructure of both Britain and Europe and is regarded by the Bank of England as systemically crucial.
But even setting aside the ‘China’ question, LSE’s board and the exchange company’s shareholders were seemingly less than enthusiastic about the offer. Shareholders had reportedly told the company that unless the offer was raised considerably to between £90 and £100 per share, with an improved weighting to the cash component, it would not be worth serious consideration. For its part, LSE Group immediately rejected the approach on the grounds it was strategically flawed, unattractively structured, undervalued the company and was unlikely to pass regulatory approval. The company also reaffirmed its commitment to its proposed acquisition of Refinitiv and that ‘good progress’ was being made to that end.
HKEX chief executive Charles Li closed the approach through a blog post on the company’s website that read:
“Despite a huge amount of work and discussions with a broad set of regulators and extensive shareholder discussions, the level of engagement from LSEG led us to conclude that the continued pursuit of a combination of the two businesses would not be in the best interests of our own shareholders.”