Hong Kong Exchanges and Clearing Limited (HKEX) has made a surprise $36.6 billion bid to take over the London Stock Exchange Group (LSE).
HKEX said it has sent a proposal to the LSE board that aims to combine the two companies in a deal that involves cash, shares, and debts. The offer is said to be around $103.00 per LSE share in cash and stock.
“A combination of HKEX and LSE represents a highly compelling strategic opportunity to create a global market infrastructure group, bringing together the largest and most significant financial centers in Asia and Europe,” said the HKEX chairwoman Laura Cha.
“Following early engagement with LSEG, we look forward to working in detail with the LSEG Board to demonstrate that this transaction is in the best interests of all stakeholders, investors, and both businesses,” adds Cha.
The takeover bid that HKEX sent LSE is not the first time that the former has targeted a UK-based exchange company. In 2012, the HKEX purchased the London Metal Exchange (LME) for $2.2 billion. At the time, the HKEX said that the acquisition would bring together a leading exchange in Asia and the world’s biggest market for base metal contacts.
If the HKEX’s bid is successful, it would be given access to London’s fixed income financial products. It would also be able to access the FTSE Russell portfolio of index benchmarks that are being utilized by institutional investors.
The move to takeover LSE is part of the three-year plan to transform the HKEX from being Asia’s third-largest capital market to becoming the go-to-market of the world during Asian trading hours. If the HKEX and LSE combine their operations, it would allow investors 18 hours of trading between the Asian and European regions.
The acquisition would help strengthen Hong Kong’s place as a key player between mainland China, Asia, and the rest of the world.
The proposal by HKEX comes at a time when the U.K.’s imminent exit from the European Union. By accepting this deal, it would present the United Kingdom with an opportunity to take part in the renminbi’s internationalization. This would also bolster Hong Kong’s position as the Chinese yuan’s offshore trading center.
A fund manager at Hengsheng Asset Management in Shanghai, Dai Ming had this to say about the possible takeover: “The merger will benefit Chinese companies, which will probably get easier listings in London in the future.”
“The Hong Kong exchange will raise its profile among the world’s bourses by doing so. For the London exchange, the acquisition will help to keep its position as a global financial center after Brexit by setting up a closer link with Asia and attracting high-quality listing resources,” adds Ming.
In response to the surprise proposal made by HKEX, the LSE referred to the offer as “unsolicited, preliminary and highly conditional.”
The bid came at a time when the LSE is set to acquire the financial data provider, Refinitiv. The all-share deal, which includes debt, is said to be worth $27 billion. If the deal is closed, the shareholders of Refinitiv will own 37% of the London Stock Exchange. This would make the two companies the largest financial markets infrastructure provider.
Less than a year ago, the news and information provider Thomson Reuters (TRI) sold the majority of its stake in Refinitiv to a group of investors headed by private equity group Blackstone.
“The board will consider this proposal and will make a further announcement in due course,” adds LSE in its statement.
It remains committed to its plan of acquiring Refinitiv. It is expected that they would be writing to the shareholders in November to seek their approval. The LSE is aiming for the deal to be closed by the second half of next year.
Between 2000 to 2017, LSE has attempted to combine with other exchanges. It has tried to merge with Deutsche Boerse but each time, the deals failed. In March 2016, the London and German exchanges agreed to merge for $30 billion. However, this was blocked by antitrust regulators in Europe.