Much ado about Juliet courtship

Editorial | Mary Ma 9 Oct 2019

The share price of Hong Kong Exchanges and Clearing shot up a few percentage points in no time at all yesterday as soon as HKEx said it was pulling the plug on a bid to acquire London Stock Exchange, which was truly an anti-climax to the whole saga.

Ever since HKEx chief executive Charles Li Xiaojia stunned his peers with an offer to buy LSE, only an enthusiastic few were absolutely upbeat about the move.

In hindsight, the boardroom equivalent of a tragic ending was sealed as soon as Li characterized his proposal as the "corporate tale of Romeo and Juliet" of the century.

That's the kind of association most people would have steadfastly avoided. While while romance can often be sweet, that Shakespearean tale was doomed for a bitter end.

If Li had chosen an improper simile, that might have been deliberate as he might merely be trying to make possible something deemed impossible. It would be difficult to think it was all a clumsy mistake in view of Li's enviable educational and career credentials.

As soon as the purchase of LSE was proposed, Li must be subconsciously aware that the offer could well be heading for a tragic ending. Yesterday's announcement confirmed this.

In pulling the plug, HKEx said it would not be in the best interest of HKEx shareholders to pursue the proposal since it had been unable to engage the LSE management.

Alternatively, HKEx could have waited until today to release the statement since the deadline for submitting a formal bid didn't expire until today. But it would have helped HKEx to save face had it recalled its proposal earlier rather than waiting to do so until after the deadline.

Did the HKEx had an elaborate battle plan at all? I doubt it.

Unless it had a plan that included contingencies for dealing with different scenarios, it was unwise indeed to surprise the world of stocks with that ill-conceived jump? The failure of a corporate romance that seemed doomed from the start has eroded HKEx's gold-plated reputation.

The damage was unwarranted and could have been avoided - just like Chief Executive Carrie Lam Yuet-ngor could have avoided ensnaring everyone here in the present political crisis.

HKEx's withdrawal of the offer marks a swift U-turn that cannot be fully explained by its all too brief statement.

As has been said before, the offer to buy LSE was unlikely to have been sanctioned by Beijing: that much was clear when the People's Daily carried a commentary mocking the bid after LSE's board of directors rejected HKEx's offer, making it even more obvious that Shanghai would be the preferred gateway to the mainland market.

The criticism wasn't unfair. Although HKEx operates in Hong Kong, mainland companies make up half of its listed companies. Worse still, their proportion continues to increase while only a few multinationals have sought new listings in Hong Kong.

As Beijing requires mainland companies to assert not only influence but also control in the SAR, mainlandization will become increasingly evident.

Ahead for the HKEx is a looming identity crisis that would have been overcome had its proposal to marry LSE been successful. Now that his Shakespearean efforts have ended in a corporate tragedy, Li will have to look at alternative ways to protect HKEx as a truly international exchange.

 

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