Concerns by U.K. exchange cloud Hong Kong bourse’s takeover offer
LONDON The plan by Hong Kong Exchanges & Clearing Ltd. to take over London Stock Exchange Group Plc is running into multiple obstacles a day after the surprise bid was launched, with the U.K. bourse leaning toward rejecting the offer in its current form.
LSE and its advisers have wide-ranging concerns, including the possible influence of China on the HKEX, and the deal could face pushback from U.K. and U.S. officials over security concerns, according to people familiar with the matter. LSE is also wary of a bid that is structured mainly in stock and has exposure to the volatile situation in Hong Kong, the people said.
The Asian bid also faces skepticism from LSE’s British-based shareholders. Jupiter Asset Management and Aberdeen Standard Investments indicated they prefer the British bourse’s planned combination with Refinitiv — a strategic purchase to expand in data that HKEX wants to scrap.
HKEX shares fell as much as 3.8 per cent, while LSE is trading at about 14 per cent below the offer price.
“Skepticism abounds around the likelihood of the U.K. regulator approving this deal,” said Guy de Blonay, a fund manager at Jupiter, which holds about 0.7 per cent of LSE’s equity. There’s “also an uncertain appetite to receive HKEX paper. At this stage, there is arguably greater long-term value in the Refinitiv deal than in the HKEX proposal.”
Representatives for LSE and HKEX declined to comment.
LSE stock initially jumped as much as 16 per cent after HKEX said it wanted to combine the exchanges in a cash-and-stock deal that valued the London firm at 29.6 billion pounds (US$36.6 billion). However, the stock pared gains amid doubts over how shareholders and regulators will react.
While the takeover represents a vote of confidence in London as a post-Brexit financial hub, the British government has the power to scrap the deal on public-interest grounds.
“The London Stock Exchange is a critically important part of the U.K. financial system, so as you would expect, the government and the regulators will be looking at the details closely,” said a spokesperson for the U.K. government on Wednesday. “We cannot comment further on commercial matters.”
But the deal isn’t dead yet. Another person familiar with the matter said that the Hong Kong exchange could consider further steps to sweeten the offer for LSE, and that they haven’t received any feedback yet from LSE’s board of directors or management.
Two people said the HKEX deal would add to LSE’s profit faster than a combination with Refinitiv, and that regulatory concerns would be easy to overcome.
Still, with global political tensions rising — including protests in Hong Kong and U.S. President Donald Trump’s trade war with China — commercial arguments may not be the most compelling, especially given the LSE’s prominence as the world’s biggest venue for handling interest-rate swaps.
U.S. regulators last year rejected a bid by a Chinese-linked consortium to take over the Chicago Stock Exchange, a deal that then-candidate Trump blasted when it was announced in 2016.