HKEX drops $283 billion bid for London Stock Exchange

Top News | Reuters, Bloomberg and Stella Zhai 9 Oct 2019

Hong Kong Exchanges and Clearing will not continue with a 29.6 billion (HK$283.6 billion) unsolicited takeover bid for the London Stock Exchange Group after failing to convince the LSE management to back a move that could have transformed both global financial services giants.

Last month's surprise cash-and-shares approach threatened to upend LSE's US$27 billion (HK$210 billion) plan to buy data and analytics firm Refinitiv.

The Hong Kong exchange had said the LSE would have to ditch the Refinitiv purchase for its offer to go ahead.

So the HKEX said it was "unable to engage" with managers of LSE. That followed the London exchange's public rejection of the surprise offer on September 11, citing "lack of strategic merit."

And HKEX chief executive Charles Li Xiaojia wrote in a blog post: "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.

"We still believe the strategic rationale for the combination of our two businesses is compelling and would create a world-leading market infrastructure group."

But analysts had viewed HKEX's chance of success as slim once it had received a negative response by LSE two days after the idea was first aired.

The political turmoil engulfing Hong Kong and Beijing's growing influence over the SAR were seen as another key obstacle to any deal.

Before yesterday's backing away, HKEX executives had met LSE shareholders in London and New York to try to gain their backing for the takeover plan.

They had also been in talks to borrow up to 8 billion to aid the purchase.

"The price tag from the Hong Kong exchange perspective was getting a bit too high, so it's good for the shareholders that they decided to walk away," said Hong Hao, head of research at broker BOCOM International. "HKEX will continue to try other things. Charles Li has done a lot of deals, most notably for the London Metal Exchange. It may not be a stock exchange but related areas."

Under British takeover rules, HKEX had until October 9 to make a binding offer for LSE.

The withdrawal means it cannot move again for LSE for at least six months unless LSE's management agreed to an offer, another group made a bid for the London exchange operator, or other events were deemed to be a material change in the LSE's circumstances.

"If the Refinitiv deal surprisingly fails to get approval, I think we could see HKEX come again," said China Galaxy Securities analyst Wong Chi-man.

"The LSE shareholder meeting to approve the Refinitiv purchase has been tentatively set for November, but there is no firm date. If that deal fails then HKEX will be there."

Shares of HKEX rose 2.3 percent to HK$231.20 yesterday, while LSE shares at one point slid 6.1 percent, close to their lowest since HKEX announced its approach on September 11.

Gordon Tsui Luen-on, chairman of the Hong Kong Securities Association, said the increase in HKEX's share price reflected an easing of shareholder concerns about the cost of a takeover.

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