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On 11 September 2019, the Hong Kong Stock Exchange (HKSE) announced a possible offer for the London Stock Exchange Group (LSE) plc. HKSE, which already owns the London Metal Exchange, offered a mixture of cash and shares in HKSE to LSE’s shareholders, valuing the LSE at £31.6bn. LSE’s board, having initially responded with a statement that it was considering HKSE’s unsolicited approach, unanimously rejected the bid on 13 September 2019.
This is not the first time that the LSE has been subject to an attempted takeover. In March 2016, The American Intercontinental Exchange (which owns the New York Stock Exchange) abandoned its bid for the LSE because the LSE board refused to engage with them. Similarly, in March 2017, the Deutsche Börse-LSE merger was blocked by the European Commission after the LSE refused to sell MTS, the Italian government bond trading platform.
In rejecting the bid, the LSE stated that the HKSE proposal does not meet its strategic objectives. HKSE had stated as a pre-condition that LSE shareholders must not approve the Group’s recent acquisition of Refinitiv, a data company which the LSE intends to purchase for £21.8 billion from Thomson Reuters and private equity firm Blackstone. However, the LSE has stated that it is committed to completing this acquisition, which it sees as an opportunity to become a major player in the financial data market. This together with HKSE’s ‘high geographic concentration’ (Hong Kong), as well as ‘its heavy exposure to market transaction volumes’ make the proposed transaction unsuitable for LSE strategically. Moreover, whereas HKSE stated that a merger would give the LSE better access to China, LSE responded that it already has a working relationship with the Shanghai Stock Exchange.
The LSE board has also expressed concerns about the deal uncertainty surrounding the bid. The proposal would require various anti-trust and financial regulatory approvals in multiple jurisdictions and this, as well as HKSE’s unusual board structure and its relationship with the Hong Kong government mean that the completion of the takeover would not be ‘certain and swift’ as claimed by the bidders.
HKSE’s Hong Kong domicile, listing, objections to three quarters of the consideration being HKSE shares, as well the ongoing unrest in the city further makes with this transaction undesirable from LSE’s perspective. HKSE remains committed to the transaction, stating that it continues to engage with LSE shareholders.
Transactions in Hong Kong have been affected by political turmoil. Alibaba delayed its IPO in Hong Kong due to continuing unrest in the city and it is rumoured that the highly anticipated Saudi Aramco IPO may exclude both Hong Kong and London due to political uncertainty, mainly to do with Brexit. These factors are probably what motivated HKSE to approach the LSE in the first place: the enlarged group created would be viewed favourably by investors even with the spectre of political uncertainly hanging over the two cities.
This bid has come at a time when London is trying to strengthen
its position as an international financial centre as the Brexit deadline looms
Parliament passed the European Union (Withdrawal) (No 2) Act 2019 to rule out
leaving the EU without a deal, there remains a question mark over an
orderly Brexit, best demonstrated by recent sterling volatility. Therefore, any
future announcements with respect to the LSE will be watched carefully by
is unclear how this transaction will develop or if other bidders enter the
scene. What is certain is that geopolitical considerations will continue to
play a part. As the LSE has made clear in its rejection, the current situation
in Hong Kong is a barrier to any deal, and the HKSE’s relationship to Hong
Kong’s government is also concerning. There is already an environment where
‘national security’ concerns are increasingly being raised in relation to
proposed takeovers, and the fear of the Chinese government getting access to
one of three pillars of London (the LSE, Lloyds of London and the Bank of
England) would not have been lost on the regulators or LSE’s board.
Rule 2.6(a) of the City code on
Takeovers and Mergers, a deadline has been imposed on HKSE that in
28 days it must make a firm offer or announce that it does intend to make an
offer. The deadline is 9 October 2019.
Tracker will continue to monitor this transaction as it develops.
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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.
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