Left Menu
Development News Edition

Hong Kong exchange vows to press on with $39 bln LSE bid after rebuff

Reuters | Hong Kong | Updated: 13-09-2019 21:48 IST | Created: 13-09-2019 21:44 IST
Hong Kong exchange vows to press on with $39 bln LSE bid after rebuff
Image Credit: pixbay.com

Hong Kong's exchange refused to give up on its bid to take over the London Stock Exchange after the British bourse emphatically rejected its $39 billion takeover offer on Friday. The Hong Kong exchange said it would now hold more talks with LSE investors as it considers its next step, aiming to keep alive its hopes of becoming a more global player to rival U.S. giants ICE and CME.

"HKEX believes that shareholders in LSEG should have the opportunity to analyze in detail both transactions and will continue to engage with them," it said in a statement. The LSE said earlier on Friday, as it rebuffed the Hong Kong approach, that it was sticking with its $27 billion acquisition of data and analytics company Refinitiv - a deal that the HKEX offer had required the London exchange to abandon.

It told HKEX in a letter that it had fundamental concerns about key aspects of its takeover proposal which it said had no strategic merit, and that HKEX's relationship with the Hong Kong government would "complicate matters". HKEX's valuation of the LSE falls "substantially short" and the "ongoing situation in Hong Kong" adds to uncertainty for shareholders, the London bourse added, a reference to weeks of pro-democracy street protests in the former British colony.

"Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement," the LSE said in a statement. HKEX, Hong Kong Exchanges, and Clearing said it was disappointed the LSE has refused to "properly engage" in a compelling proposal.

A source close to HKEX added the quick dismissal of the surprise offer, announced on Wednesday, meant the Hong Kong bourse had very little time to discuss their proposal with investors, a sentiment echoed by some shareholders. "As shareholders in LSE, it's difficult to evaluate the merits of a combination with HKEX as we have been given no information on potential synergies," said James Bevan, chief investment officer at CCLA, which holds a small stake.

LSE shares, however, rose on the news of the offer rejection and closed up 2.73% at 7,450 pence. LSE's blunt rejection letter said the Hong Kong offer did not meet its strategic objectives. It said it was sticking with its core strategy of expanding into data with the Refinitiv deal, rather than taking a "significant backward step" by bulking up on market transactions in the HKEX proposal.

The LSE also said a Hong Kong takeover could well be rejected by regulators or governments in Britain, the United States, and Italy. HKEX's assertion that implementing the deal would be swift and certain "is simply not credible", it added. The LSE also owns the Milan exchange and has a significant American presence through its FTSE Russell index subsidiary and LCH, its derivatives clearing house which dominates the U.S. dollar swap market.

HKEX added on Friday that it had held initial constructive discussions with regulators and policymakers. But a regulatory source in Britain said no substantive discussions had been held on the proposed deal so far.

HIGHER OR HOSTILE?

The flat rejection indicates HKEX boss Charles Li is unlikely to win the LSE board round with an improved financial offer, meaning he may have to go hostile if he wants to persist. He would need to launch a major charm offensive with investors to convince them the LSE board is wrong. However, a source close to the LSE said even if the cash component of HKEX's cash-and shares offer was raised, it would increase the risk for a combined group by piling on more leverage.

The source said a higher bid by the Hong Kong exchange or going hostile was unlikely to succeed because its proposal was "just too weak on every fundamental point". A deal will be also challenging given the troubled history of big exchange mergers, combined with Hong Kong's current unrest.

The industry has been littered with attempts at cross-border tie-ups for over a decade as profits from the traditional business of running stock markets and clearinghouses have fallen. But proposed deals have collapsed in the face of regulatory and political opposition to core parts of a country's financial system falling into foreign hands. This has pushed exchanges to look for related businesses for growth, with the likes of LSE and New York Stock Exchange owner ICE driving into more profitable and less politically sensitive areas like data and analytics, where revenue is rising.

"This (rejection) certainly makes it clear that even if the HK exchange were to reconsider the terms of the transaction, it shows fundamentally the LSE board would prefer to go down the Refinitiv route," said Michael Werner, an analyst at UBS. HKEX made its offer just two days after its officials travelled to London to present it to LSE Chief Executive David Schwimmer for the first time. It has been coolly received by shareholders on both sides so far.

PROTESTS AND POLITICS

Analysts said a perception that Beijing is exerting growing influence over Hong Kong was a key sticking point for an LSE takeover, given the Hong Kong government's close links with the HKEX. The Hong Kong government is the biggest shareholder in HKEX, with a 6% stake and approves six of the 13 board members.

Hong Kong is entering the fourth month of sometimes violent protests sparked by legislation that would have drawn the former British colony closer to the Chinese legal system. Fitch Ratings said, before the LSE's rejection of the offer, that "increasing control by Chinese authorities over Hong Kong" could raise regulatory concerns in Britain and the United States about data and information security.

HKEX, for its part, had touted the deal as providing London with a major gateway to the Chinese economy, but the LSE said HKEX did not provide the best long-term option. "We value our mutually beneficial partnership with the Shanghai Stock Exchange which is our preferred and direct channel to access the many opportunities with China," the LSE said.

The LSE and Shanghai have recently launched a share trading link. Earlier on Friday, ahead of the rejection, HKEX boss Li told Reuters that his proposal was one about boosting the long-term fortunes of both exchanges.

"Whoever can come up with a system that either allows money to go into China or allow the Chinese money to come out is going to really, really transform global financial markets."

Also Read: Hong Kong Exchanges proposes $39 bln London Stock Exchange takeover


TRENDING

OPINION / BLOG / INTERVIEW

Post-COVID-19 Nigeria needs a robust Health Management Information System to handle high disease burden

Nigeria is among a few countries that conceptualised a health management information system HMIS in the early 90s but implementation has been a challenge till date. Besides COVID-19, the country has a huge burden of communicable and non-com...

Morocco COVID-19 response: A fragile health system and the deteriorating situation

Learning from its European neighbors, Morocco imposed drastic measures from the initial stages of the COVID-19 outbreak to try to contain its spread. The strategy worked for a few months but the cases have surged after mid-June. In this sit...

COVID-19: Argentina’s health system inefficiencies exaggerate flaws of health information system

You can recover from a drop in the GDP, but you cant recover from death, was the straightforward mindset of Argentinas President Alberto Fernndez and defined the countrys response to COVID-19. The South American nation imposed a strict...

Rwanda’s COVID-19 response commendable but health information system needs improvement

Rwanda is consistently working to improve its health information system from many years. However, it is primarily dependent on the collection and reporting of health data on a monthly basis. Besides, evaluation studies on Rwandas HIS publis...

Videos

Latest News

Over 19,800 cases were pending before NCLT till July 31

As many as 19,844 cases were pending before the National Company Law Tribunal NCLT as on July 31 this year and majority of them were under the insolvency law, according to the corporate affairs ministry. Minister of State for Corporate Affa...

ABVP activists show black flags to Maha minister

ABVP activists on Sunday tried to stop convoy of Maharashtra Higher and Technical Education Minister Uday Samant here for various demands. The incident occurred in afternoon outside the campus of the Yashwantrao Chavan Maharashtra Open Univ...

Amgen drug shrinks tumors in lung cancer patients with KRAS gene mutation -study

An experimental Amgen Inc drug that targets a specific genetic mutation shrank tumors in 32 of advanced lung cancer patients and 7 of those with colon cancer, according to data from an early-stage trial presented on Sunday.The median length...

Guj: Boat capsizes in reservoir, 1 dead, 5 swim to safety

A man drowned and fivepeople were rescued after their boat capsized in the reservoirof Ukai dam in Tapi district in Gujarat, police said onSundaySix people from Manekpore village had gone fishinglate Saturday evening but their boat toppled ...

Give Feedback