London Stock Exchange flatly rejects Hong Kong's $39 billion takeover offer

Daniel Fowler
September 19, 2019

The London Stock Exchange Group on Friday turned down a takeover bid by the Hong Kong Stock Exchange, citing "fundamental" flaws and concerns over its ties to the Hong Kong government.

In a statement, LSEG said management "unanimously rejects the conditional proposal" from Hong Kong Stock Exchange (HKEX) and "given its fundamental flaws, sees no merit in further engagement" regarding the offer worth nearly £32 billion ($40 billion, 36 billion euros). LSE shares were last up 1.3% at 7344 pence.

"There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters", Robert wrote.

Under the proposal, HKEX would offer 2,045p (2,295c) in cash and 2.495 (2.800c) newly issued HKEX shares.

"Her modus is quite simple: she knows everybody in the exchange and financial infrastructure world, she understands the markets ... and she runs a very disciplined process", said Martin Abbott, London Metal Exchange's former chief executive.

HKEX on Wednesday offered to take over one of Europe's largest exchanges for £29.6 billion ($36.6 billion).

"The ongoing situation in Hong Kong adds to this uncertainty".

"Some people in Hong Kong still have a negative view toward integrating into the development of the nation, as they don't see what opportunities it brings to Hong Kong", according to the commentary.

LSE's blunt rejection letter said the Hong Kong offer did not meet its strategic objectives.

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"Even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv", Robert said.

"So, if CFIUS does review the deal, it would likely treat the Hong Kong exchange the same as it would a mainland Chinese entity", added Hanke, who helped craft the Foreign Investment Risk Review Modernization Act, legislation due to be implemented next year which aims to beef up CFIUS' oversight powers.

"The board of HKEX had hoped to enter into a constructive dialogue with the Board of (LSE) to discuss in detail the merits of its proposal and are disappointed that (LSE) has declined to properly engage". For this, LSE must refrain from taking over data supplier Refinitiv.

"It seems that the current climate in Hong Kong is a major factor in the rejection of the bid".

The Hong Kong stock exchange is planning to undermine LSE's case for buying Refinitiv and characterised the company as a low-growth utility weighed down with debt.

Shares in the LSE lifted 3 per cent.

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'.

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