Hong Kong Stock Exchange Scraps Its Uninvited £39bn Bid For London Stock Exchange

In the recent development to the announcements made by Hong Kong Exchanges and Clearing Limited (HKEX) and London Stock Exchange Group Plc (LSEG) in relation to HKEX’s possible bid to acquire entire issued and to be issued share capital of London Stock Exchange Group Plc, Hong Kong bourse has made it clear that it does not intend to make a bid for London Stock Exchange Group Plc and is consequently bound by the restrictions under Rule 2.8 of the Code

Meanwhile, the Board of Directors of Hong Kong Exchange and Clearing Limited were still of opinion that a combination of LSEG and HKEX is tactically captivating and carries the potential to become a global-leading market infrastructure group business. Despite negotiations with a wide set of controllers and widespread shareholder meetings, the Board of HKEX is dismayed that it was unable to fix it with the administration of LSEG in accomplishing this vision, and as a result, the board of HKEX has decided it is not in the best interests of HKEX stockholders to pursue this offer any further.

The unprecedented cash and shares approach, extended by Hong Kong Exchange and Clearing Limited had threatened to conquer LSE's $27bn plan to acquire data and analytics business Refinitiv. The HKEX had mentioned that the LSEG would have to forgo the Refinitiv buy for its offer to go ahead.

The offer to acquire the entire share capital of the LSE by the HKEX was extended to London Stock Exchange Group Plc on September 11, 2019, when HKEX presented the proposal in front of the board of directors of the LSEG to combine the two companies. Through this combination, HKEX was aiming to become a bigger global player against its peers the United States Giant ICE and CME.

After the withdrawal of the HKEX £39bn offer, Charles Li, the Chief Executive of the HKEX, in a blog commented that:

“We still think that the strategic justification behind the association of HKEX and LSE is appealing and it would help inestablishing a global-leading market infrastructure group company.”

What was the rationale behind HKEX proposed offer?

The board of HKEX at the time of initial bid raised to the board of LSE argued that LSEG and HKEX are two of the Global renowned market infrastructure companies, which together carry the high potential to offer unique services and can enhance and capture global capital and data flows. The planned combination would fortify both businesses, and better position them to innovate across markets and geographies, while offering market participants and investors unparalleled global market connectivity.

The proposed combination would establish a global large market infrastructure group with a worldwide footprint, diversified across asset class, ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China, it could strengthen the UK’s role in capturing the significant growth opportunities presented by Mainland China’s continuing internationalisation and the emergence of RMB as a global reserve currency. It would have reinforced Hong Kong's position as the vital link between Mainland China, Asia and the rest of the world, providing a trusted and vibrant path for the continual opening of Mainland China's capital markets and for the investment of Asia's growing wealth.

It would have allowed the creation of unique and valuable data sets for global stakeholders, through the blend of LSEG’s global data and analytics capabilities coupled with distribution channels, and HKEX’s access to China, the world’s most digitalised growing economy.

Enhanced global capital formation by making it easier for companies to access equity capital around the globe, through the IPO and secondary fundraising markets in London, Hong Kong, Milan, and Mainland China via the Connect programmes; and Offer innovation opportunities in equities, fixed income, currencies, commodities and derivatives products with domestic, regional and global relevance; allow for the application of best-in-class technologies in multiple markets and platforms; and help strengthen transparency, resiliency and risk capabilities in both London and Hong Kong.

Post announcement made by the HKEX, shares of the Hong Kong Exchanges and Clearing Ltd traded 5.2 points or 2.3% at $ 231.2c at The Stock Exchange of Hong Kong Ltd. However, shares of London Stock Exchange Group Plc fell off approximately 454 points or 6.09% against the previous closing level and was trading at GBX 6,998.0 (as on September 08, 2019 at 09:54 AM GMT, before the market close).

London Stock Exchange Group Plc (LSE) is a London, the United Kingdom-headquartered company, engaged in international markets infrastructure business, operating an extensive array of equity, ETF, bond and derivatives markets. The company is also a global leader in financial indexing, analytic services and benchmarking and offers market participants unmatched access to capital markets in Europe.

Recently (August 01, 2019), the group had announced the acquisition of Refinitiv for a consideration of $27 billion, to be funded by issuing $14.5 billion worth of new shares and taking on $12.5 billion of existing debt. The pact would help the group to rival the financial data realm of Bloomberg and turn it into global markets and information behemoth. It will also help the company to lessen its dependence on its UK and European business further and become less reliant on transaction-based revenues. The combined business would produce a leading, London headquartered, international financial market infrastructure provider who will have annual revenues of more than GBP 6 billion with planned yearly cost savings of more than GBP 350 million within five years of a deal.

Shares of the London Stock Exchange Group Plc were among the best performing shares of the FTSE 100 index during 2019, on a YoY basis, its shares have delivered approximately 65.16% of return, and handed a return of around 83.46% over the Year-to-date basis. Despite a substantial fall in its stock price in the October 08, 2019 market session, the stock is still quoting substantially above its long-term crucial support level of 200-day simple moving average price. In the year-over period, shares of the LSE have registered a 52w high of GBX 7,922.0 (as on September 11, 2019) and a 52w low of GBX 3,843.0 (as on December 06, 2018), respectively. At the current trading, LSE shares are trading 12.55 off those high.

In response to the HKEX withdrawal statement announcement, the London Stock Exchange Group Plc through an exchange filing reported that LSEG remains committed to and continues to make good progress on its proposed acquisition of Refinitiv. The group also mentioned that regulatory approval processes are on the way and shareholder’s consent for the transaction is assumed to be sought at an Extraordinary General Meeting in November 2019. The deal remains on track to close during the second half of the FY20.