Hong Kong to go hostile with LSE bid

Stock Exchange rejects ‘flawed’ £30bn offer saying it would ‘complicate’ its opportunities with China

The Hong Kong stock exchange is set to go hostile in its battle for the London Stock Exchange Group after its £30billion offer was firmly rejected yesterday. The response from Hong Kong Exchanges and Clearing came after the LSE said its proposal had “fundamental flaws” around its structure and value. Hong Kong bosses said they would hold more talks with LSE investors as City analysts said they expected the Hong Kong bourse to consider a hostile bid.

THE Hong Kong stock exchange is set to go hostile in its battle for the London Stock Exchange Group after its £30bn offer was firmly rejected yesterday.

The response from Hong Kong Exchanges and Clearing came after the LSE said its proposal had “fundamental flaws” around its structure and value. HKEX quickly fired back, arguing that the offer represented “a highly compelling strategic opportunity to create a global market infrastructure leader”.

Bosses of the Hong Kong bourse said they would hold more talks with LSE investors. They also hoped to enter into a “constructive dialogue” with the LSE board and were disappointed that it had “declined to properly engage”.

City analysts said HKEX remained “committed” to the deal. “We’re hearing that Hong Kong is setting up measures [for a hostile bid],” said one analyst at a large City brokerage.

“They could always come back with a higher offer first, but if the LSE board did not want to co-operate they could consider a hostile bid.”

Another analyst said that in most cases it was “helpful” to talk to management – “otherwise there’s all this information you just don’t know, but in exchange deals a lot of that information is public, so it’s not quite as bad”.

As part of its rejection of the £83.61 a share offer, LSE said it would stick to its own £22bn takeover of financial data provider Refinitiv.

Regulatory approval processes are already under way, with shareholders expected to give the deal the thumbsup in November. A break fee of almost £200m would be payable by the LSE if it backed out buying Refinitiv, which the Hong Kong offer requires it to do.

In a letter to HKEX, the LSE said its bid did not meet its strategic objectives, unlike the Refinitiv deal. HKEX said it still believed the benefits of its proposal “significantly outweigh” those of the Refinitiv acquisition.

M&A lawyer Roger Barron called LSE’S rejection “unsurprising”.

One analyst added that he “fully expected” LSE to turn down HKEX’S advances because its Refinitiv deal was “preferred” by the majority of shareholders. LSE said the Hong Kong offer could also jeopardise its relationship with the Shanghai stock exchange, which it called “our preferred and direct channel to access the many opportunities with China”.

“There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters,” London added.

The Hong Kong government is HKEX’S largest shareholder, with its Beijing-backed chief executive Carrie Lam facing intense criticism over the handling of pro-democracy protests. HKEX said it had held “initial constructive discussions” with regulators and policymakers.

James Bevan, chief investment officer at CCLA, which has a small stake in LSE, said: “It’s difficult to evaluate the merits of a combination with HKEX as we have been given no information on potential synergies.”

The majority of the value of the Hong Kong offer would also be in HKEX shares, which LSE said represented a “fundamentally different and much less attractive” proposal.

Some shareholders have speculated that other suitors, such as the US Intercontinental Exchange and the Chicago Mercantile Exchange, could now emerge.

Shares in LSE Group closed 3.6pc higher at £75.14.