Hong Kong Exchanges and Clearing, the third-largest stock-exchange group in Asia, has offered to buy the London Stock Exchange for £20.45 a share in cash and 2.495 newly issued HKEX shares in a deal that would spoil LSE's planned merger with data provider Refinitiv, according to the Financial Times.
HKEX's offer values LSE at £83.61 a share, a 23% premium to LSE’s closing price on Tuesday. LSE shares climbed as much as 16% before paring gains to trade 5.9% higher after HKEX made its surprise $36.6 billion bid for the UK-based exchange group. LSE later said in a statement that it "remains committed to" its proposed acquisition of Refinitiv.
If the deal were to be completed, it would be by far the largest in the history of HKEX, which previously bought the London Metal Exchange for £1.4 billion in 2012.
"Bringing HKEX and the London Stock Exchange together will redefine global capital markets for decades to come," said Charles Li, chief executive of HKEX. “Both businesses have great brands, financial strength and proven growth track records. Together, we will connect East and West, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities."
Per the FT, Li is trying to make HKEX into a "department store" for investors looking to increase their exposure to China just as Beijing is trying to open its markets to more foreign investment.
"LSEG and HKEX operate some of the most significant financial infrastructure in two of the world’s most important financial markets. Together, they will create a world-leading global exchange that spans Asia, Europe and the United States," Li said. Li added that the move was "a vote of confidence in London and the UK’s future role as a global financial center [that] strengthens the City’s hand, ensures it will benefit from growth opportunities in Asia and that it plays a leading role in the RMB becoming a major global reserve currency in the future."
But even with the weakened pound, Louis Capital’s Ben Kelly says the deal isn't as opportunistic for HKEX than it might seem from the outset, especially when you look at LSE’s EV/Ebitda multiple, already at historically high levels.
Kelly doesn’t expect the deal to be consummated, given issues including likely political opposition in the UK to an exchange being taken over by a Hong Kong company that is 6% owned by the state. It's likely that, if nothing else, national security concerns will almost certainly be raised to scuttle the deal.
UK Business Secretary Andrea Leadsom said that while the UK welcomes foreign investment, it would need to "look very carefully at anything that had security implications for the UK."