Hong Kong Exchanges makes ?29.6bn bid for LSE

11 September 2019

(Sharecast News) - London Stock Exchange said on Wednesday that it will consider an "unsolicited, preliminary and highly conditional" £29.6bn takeover offer from Hong Kong Exchanges and Clearing, as analysts expressed doubts that a deal would occur.
"The board of LSEG will consider this proposal and will make a further announcement in due course," it said.

The group, which agreed last month to buy financial data and trading platform provider Refinitiv in a $27bn deal, said it "remains committed to and continues to make good progress" on the proposed acquisition.

Hong Kong Exchanges & Clearing said earlier that it has offered 2,045p per share in cash and 2.495 newly-issued HKEX shares for the LSE. This is a premium of approximately 23% to the closing price on Tuesday.

HKEX chairman Laura Cha said: "We believe a combination of HKEX and LSEG represents a highly compelling strategic opportunity to create a global market infrastructure group, bringing together the largest and most significant financial centres in Asia and Europe.

"Following early engagement with LSEG, we look forward to working in detail with the LSEG board to demonstrate that this transaction is in the best interests of all stakeholders, investors and both businesses."

At 1205 BST, LSE shares had come off their highs, up 3.9% at 7,068p, having surged to as much as 7,922p when the news first came out, as analysts questioned the likelihood of a deal being done.

Neil Wilson, chief market analyst at <em>Markets.com</em>, said the bid was a "non-starter".

"It's a bold move and one that appears to have a low chance of success. Given the long and ignoble history of bids for LSE we think there is a very high bar to clear in order for this to succeed. Whilst HKEX already has a foothold in the UK via its ownership of the LME, the LSE is a different ball game entirely."

He added that political considerations will be front and centre, with the UK government unlikely to want to see such a vital symbol of UK financial services strength owned by foreigners.

Richard Hunter, head of markets at <em>Interactive Investor</em>, said: "The proposed offer would be totemic in terms of East-West relations and the complementary strengths of the two exchanges would make strategic sense.

"This is an initial shot, however. As such, and not surprisingly, it will throw out a number of questions rather than answers at this stage.

"The scale of the deal is one which approximately results in the two exchanges being a merger of equals. The London Stock Exchange has historically fought off approaches from overseas, preferring instead to be the acquirer. It may also be that the likes of the New York Stock Exchange will be looking on with interest.

"In addition, the very nature of the Hong Kong approach will be subject to any number of considerations, such as competitive and regulatory issues. This is quite apart from the political questions it raises, both in terms of the history between the two 'countries', as well as how an East-West tie-up might be seen in the eyes of the United States, given the current economic situation."

Hunter noted the fact that part of the proposal requires the LSE to back away from its recent deal to acquire Refinitiv, saying this appears to be an early stumbling block.

"The proposal is a fascinating prospect, but far from a done deal. The fact that the LSE share price has already retreated from the initial 10% spike on release of the news may reflect some initial scepticism around the likelihood of the deal going through."

<em>Olivetree Financial</em> pointed out that investors like LSE's Refinitiv transaction, which means that any acquirer would need to pay a material premium over and above the benefits of this deal that were already being priced in. "This adds up to high single digit billions of dollars in reality," it said.

"Given the market cap of HKEX is only just bigger than that of LSE, it is tough for HKEX to start to leak goodwill like this - they are simply buying a different asset to that which LSE and its shareholders are selling. It would therefore seem reasonably easy for LSE's board to maintain a stance of rejection and persuade target shareholders that Refinitiv is a better deal to both shareholders and politicians, unless HKEX or any other group can pay a truly knockout price."