London Exchange rejects Hong Kong’s surprise takeover bid in strongly worded endorsement of Shanghai as ‘preferred partner’

Enoch Yiu

The London Stock Exchange has rebuffed Hong Kong’s unsolicited takeover bid in a strongly worded letter and separate website post spelling out its concerns about the “fundamental flaws” of the plan, which included the current political crisis engulfing the city.

The UK bourse’s board of directors said it had unanimously rejected the US$36.6 billion proposal from Hong Kong Exchanges and Clearing, which surprised the market when it was announced earlier this week.

In a letter to the chairman and chief executive of Hong Kong Exchanges and Clearing, LSE chairman Don Robert pulled no punches, making clear his preference for Shanghai over Hong Kong as a strategic partner.

“We do not believe HKEX provides us with the best long-term positioning in Asia or the best listing/ trading platform for China. We value our mutually beneficial partnership with the Shanghai Stock Exchange which is our preferred and direct channel to access the many opportunities with China,” it said.

He was referring to LSE’s existing stock connect scheme with Shanghai Stock Exchange, which he said gives it direct access to China.

A statement posted on the LSE website on Friday said: “The board has fundamental concerns about the key aspects of the conditional proposal: strategy, deliverability, form of consideration and value,” said a statement posted on the LSE website on Friday, just two days after the local bourse made the unexpected offer.

“Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement.”

HKEX makes US$36.6 billion surprise bid to take over London Stock Exchange

Robert’s letter to his HKEX counterpart, Laura Cha Shih May-lung, and chief executive Charles Li Xiaojia, set out the reasons for the rejection and expressed dismay at HKEX’s conduct.

“We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it,” Robert said in the letter, referring to the “highly conditional proposal” made in private by the HKEX on Monday.

The HKEX, which operate the third-largest capital market in Asia, responded in a statement late on Friday, saying it was disappointed the LSE had “declined to properly engage”.

“In particular, HKEX had hoped to demonstrate why it believes that the benefits of its proposal significantly outweigh those of the proposed acquisition of Refinitiv,” it said, adding that it would continue to “engage with shareholders”.

It revealed its shock bid on Wednesday, offering to pay £83.61 per LSE share in cash and stock for the London bourse operator, which valued it at £29.6 billion (US$36.6 billion).

It was the highest ever takeover offer for a stock exchange, and included a demand that the LSE would need to give up its own US$27 billion acquisition of the financial data provider Refinitiv, announced on August 1.

The LSE board said it considered the offer to be undervalued and would stick to its plan to pursue the deal with Refinitiv, which is expected to be completed in the second half of next year.

“We do not see strategic merit for LSEG (London Stock Exchange Group) in your proposed transaction,” Robert said. “We recognise the scale of the opportunity in China and value greatly our relationships there. However, we do not believe HKEX provides us with the best long-term positioning in Asia or the best listing /trading platform for China.”

The rejection was also because the LSE considers HKEX shares to be “unattractive”. The offer took the form of 25 per cent in cash and 75 per cent in new shares.

“We see the value of your share consideration as inherently uncertain. The ongoing situation in Hong Kong adds to this uncertainty,” he said. The city has faced unprecedented anti-government protests since June 9 that have shaken confidence in its standing as a global financial hub.

“Furthermore, we question the sustainability of HKEX’s position as a strategic gateway in the longer term. The Hong Kong concentration and core characteristics of your business, together with your Hong Kong domicile and listing, present an additional set of difficulties,” the LSE chairman said.

HKEX would have needed to get approval from a number of regulators in the UK, US, and Italy for the takeover to go ahead.

The Hong Kong government is the largest shareholder in HKEX with a 6 per cent stake, and it appoints half of the board members. This would “complicate matters” and “pose a serious risk for our shareholders,” Robert said.

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