Abu Dhabi, UAEThursday 17 October 2019

London Stock Exchange rejects Hong Kong $39bn takeover offer

The unsolicited bid was made earlier this week

The London Stock Exchange said that the proposal has 'fundamental flaws' in a statement. Getty Images
The London Stock Exchange said that the proposal has 'fundamental flaws' in a statement. Getty Images

London Stock Exchange has rejected Hong Kong Exchange's $39 billion (Dh143bn) takeover offer, saying the bid has "fundamental flaws".

The board of the 300-year old British bourse, which is working on its own deal to buy data provider Refinitiv, said HKEX’s approach on Wednesday had problems in its “strategy, deliverability, form of consideration and value”.

“Given the fundamental flaws in your proposal, we see no merit in further engagement,” the firm said in a statement Friday.

LSE published a letter to HKEX raising several concerns including potential regulatory issues in the UK, US and Italy. It said its existing partnership with the Shanghai Stock Exchange “is our preferred and direct channel to access the many opportunities with China”. The political climate in Hong Kong was also a situation that would "complicate matters".

“Your assertion that implementation of a transaction would be ‘swift and certain’ is simply not credible,” LSE said.

Noting that three-quarters of the proposed consideration is in HKEX shares, the firm said the value is "inherently uncertain" and a "less attractive investment proposition to our shareholders".

Shares in the LSE were up 1.6 per cent after the announcement in London trading. The shares initially rose as much as 16 per cent on Wednesday after HKEX said it wanted to combine the exchanges in a cash-and-stock deal that valued the London firm at £29.6 billion (Dh135.3bn). However, the stock pared gains after investors raised doubts about its attractiveness compared to the Refinitiv acquisition.

HKEX has said its takeover would only happen if the LSE ended its deal with Refinitiv. In its letter, LSE said there is "positive market sentiment" about the value creation of the Refinitiv acquisition. The letter noted that since the Refinitiv announcement in August, the LSE Group share price is up 29 per cent, a value increase of £5.8bn.

Analysts expect the Asian exchange to return with an improved proposal.

“I don’t expect HKEX to walk away without trying more,” Massimo Stabilini, founder and managing partner of hedge fund Sinclair Capital, told Bloomberg. “I expect them to come back with a better offer and with a higher cash component.”

The British government has the power to scrap the deal on public-interest grounds. On Wednesday it said LSE is a “critically important part of the UK financial system” and that it would be closely scrutinising details of the transaction.

Both firms have been involved in exchange merger deals in recent years, with LSE failing in its most recent attempt two years ago to combine with Deutsche Boerse. HKEX acquired London Metal Exchange in 2012 for £1.4bn.

Updated: September 13, 2019 05:10 PM

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