Seven bids, or merger proposals, for the London Stock Exchange Group have failed in the last 20 years and here’s another that deserves to go nowhere. To succeed, the Hong Kong crew pitching a £32bn proposal would have to win backing from the LSE’s shareholders, several regulators and, for practical purposes, politicians. Hong Kong Exchanges and Clearing (HKEX) will struggle on all fronts.
Investors’ scepticism was obvious. The LSE’s share price rose only 6%, a weak response to an offer boasting a notional 23% premium. But the reaction was fair. LSE shareholders are being offered a relatively small portion of cash (less than a quarter of the value of the offer), plus a 41% holding in an enlarged Hong Kong-based outfit.
That structure lacks appeal. Some UK funds aren’t allowed by their mandates to own shares outside UK indices. Others won’t want prolonged exposure to a company where political events can whack the share price. Almost half of HKEX’S board is appointed by the Hong Kong government, the one that has ineptly handled weeks of violent protests.
As for the LSE’s board, it has a decent strategy already. It is to buy Refinitiv, an information provider spun out of Thomson Reuters, for $27bn. The takeover was announced last month and was well-received . LSE’s shares surged in value. The Hong Kong bid, in effect, asks the LSE to abandon that deal and build instead “the world’s premier market infrastructure business”.
One see the attraction for a bidder that concedes the LSE’s kit is better than its own. But it’s hard to see why the LSE’s chief executive, David Schwimmer, should be distracted by a few loose visionary lines about capturing capital flows between Asia and Europe. Monetising data, he has argued, is where the added-value action lies these days, and Refinitiv would get the LSE into serious competition with the mighty Bloomberg.
The commercial calculation in the LSE boardroom might be different if HKEX were bidding mostly in hard cash – but it’s not.
Then there are the regulatory and political hurdles. HKEX has owned and run the London Metal Exchange for seven years without causing problems but a takeover of the LSE is far more important. City regulators would demand water-tight protections around the UK assets and, since the LSE owns the Italian bourse in Milan, the EU will have a view on handing control to a Hong Kong operator that Beijing, one can assume, would never allow to be sold.
The approval process could take a year and the outcome would be uncertain. The Refinitiv deal, by contrast, is agreed and generates no political heat.
Attempting to whip up some enthusiasm, Charles Li, HKEX’s chief executive, rolled out the standard line about the bid being “a vote of confidence in the UK”. Thanks for that but the LSE, as opposed to the UK, is doing fine. Brexit hasn’t obviously interrupted progress and the share price has more than doubled since the collapse of the planned “merger of equals” with Deutsche Börse in 2017.
The LSE doesn’t need a deal that offers little upfront reward and has serious long-term risks. Just say no.
Mike Ashley faces direct intervention over audit
Henry Ford reputedly never bothered with auditors at the Ford Motor Company in the US a century ago. Unfortunately for Mike Ashley, the Companies Act in 21st-century Britain is more demanding. Sports Direct does not have a choice.
UK-listed companies must have their accounts audited, which means having an auditor. Sports Direct doesn’t have one after Grant Thornton’s formal resignation at Wednesday’s annual meeting of shareholders so best to get a move on.
Indeed, the timetable for publishing on schedule Sports Direct’s half-year numbers, due in December, already looks tight. An incoming auditor needs time to understand the job, which is not straightforward in this case. The €674m (£605m) demand from the Belgian tax authorities is merely one of many complexities at Sports Direct. Last year’s baffling purchase of House of Fraser out of administration is another.
Ashley sounds determined to land a “Big Four” auditor as a matter of personal pride, even though all the main names are said to be resisting the honour.
If it comes to it, the business secretary (that’s Angela Leadsom this week) is allowed to intervene and volunteer somebody for the job. Such an outcome, you might think, would be a humiliation too far, even for Ashley – except he’s surprised us in the past.