As published on cityam.com, Wednesday September 11, 2019.
Hong Kong Exchanges and Clearing (HKEX) has made a surprise proposal to buy the London Stock Exchange (LSE) in a £30bn tie-up, it said this morning.
Yet it said the deal is subject to LSE’s mammoth £27bn (£22bn) merger with financial data provider Refinitiv falling through.
The London Stock Exchange agreed to buy Refinitiv at the end of July in a deal that aims to expand the group’s reach around the world and set it up as a rival to data provider Bloomberg.
Laura Cha, chairman of the Hong Kong exchange, said the proposal was “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”.
The proposed transaction implies a value for each LSE share of around 8,361p, giving an enterprise value of £31.6bn. This represents a premium of 23 per cent to the closing share price of 6,804p on 10 September.
LSE’s share price had risen 5.6 per cent by 11.20am UK time to 7,184p.
The London Stock Exchange said it “will consider this proposal and will make a further announcement in due course”. It called the proposal “unsolicited, preliminary and highly conditional”.
It said that it “remains committed to and continues to make good progress on its proposed acquisition of Refinitiv”.
The bid follows closely on the heels of a £4.6bn deal for UK pubs operator Greene King by Hong Kong’s wealthiest person Li Ka-Shing. Some analysts said at the time that the weakened pound due to Brexit uncertainty has made British companies attractively cheap.
It would be the biggest deal in LSE’s history. A merger with German rival Deutsche Boerse was prevented by regulators in 2017.
The Hong Kong exchange said it intends to apply for a secondary listing of its shares on the London Stock Exchange should the deal go through, “reflecting HKEX’s commitment to the UK” and its intentions to expand globally.
The offer comes despite turmoil in Hong Kong, the semi-autonomous Chinese region that has been racked by protests for five months. Hong Kong’s Hang Seng index has shed almost nine per cent since the start of April.
Yet this has not knocked HKEX’s confidence. Charles Li, chief executive of HKEX, said of the proposed tie-up: “Together, we will connect east and west, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities.”
Graham Spooner, investment research analyst at The Share Centre, said: “The LSE’s share price has been strong year to date and there have been thoughts the group could be a target again, especially following the proposed merger with Deutsche Boerse.”
HKEX said the deal would be financed through a combination of existing cash resources and new credit facilities.