Hong Kong Stock Exchange In Surprise Move To Buy London Stock Exchange

Hong Kong Stock Exchange
People walk over a pedestrian bridge in Hong Kong (Photo: Reuters / Willy Kurniawan)

Hong Kong Exchanges and Clearing Ltd (HKEX) has announced its intention to merge with the London Stock Exchange Group Plc (LSE) in a deal worth at least $36.6 billion.

The unsolicited bid made Wednesday is merely an announcement to make a possible offer warned HKEX, and isn't confirmation of a firm intention to bid. HKEX said it wants to "combine the two companies."

"The board of HKEX believes that the two businesses are highly complementary and as such, looks forward to working with the relevant authorities to deliver a clear path to completion," said HKEX.

HKEX expects key LSE management to keep their jobs and work for the new owners.

LSE's board of directors described the HKEX offer as unsolicited, preliminary and highly conditional.

The proposal by HKEX will see it offer 2,045 pence and 2.495 newly issued HKEX shares for every LSE share. This values each LSE share at 8,361 pence. LSE's stock rose 6.2 percent to 7,190 pence on Wednesday at 10:54 a.m. in London after earlier surging as much as 16 percent.

HKEX had a market capitalization of $4.2 trillion in December 2018. On the other hand, LSE had a market capitalization of $3.93 trillion as of March 2019. LSE is ranked seventh in market capitalization among the world's 144 stock exchanges.

HKEX cautioned the proposed deal will only go ahead if LSE shelves its plan to buy Refinitiv, a global provider of financial markets data and infrastructure. Refinitiv is jointly owned by Blackstone Group LP (55% stake) and Thomson Reuters (45%). It has more than 40,000 client companies in 190 countries.

LSE earlier announced plans to spend $27 billion to acquire Refinitiv in a bid to better challenge Bloomberg. HKEX already provides financial market data through its subsidiary, HKEX Information Services Ltd.

LSE's board of directors, however, said it "remains committed to" the acquisition of Refinitiv, immediately placing the HKEX bid in jeopardy.

HKEX CEO Charles Li on Wednesday said his exchange had considered the "ambitious and far-reaching" deal for one of Europe's largest exchanges for many months."

I hinted as much earlier this year when he said HKEX aims to be "globally connected" while remaining "China anchored." Li, however, has strengthened HKEX's links to the Chinese mainland.

HKEX also owns and operates the London Metal Exchange (LME), the world's largest market in options and futures contracts on base and other metals.

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