Hong Kong Exchanges & Clearing Ltd. is offering $37-billion to buy out its rival, the London Stock Exchange. But top investors and bankers are not so sure if supporting this bid will be a good idea.
The Asian stock exchange group has reportedly been told their initial offer was too small. In fact, HKEX was told to secure another 4 billion pounds from its coffers if the group wants to have full control of its London competitor.
Major stockholders are demanding that HKEX offer them a much more attractive proposition for LSE, The Mail reported on Monday. Investors said that they would not hand over control for under 90 pounds per share, representing a 21-percent premium on LSE's current stock price of 73.8 pounds.
The proposed buyout is the biggest deal out of Asia in what has been a grinding year so far during a slow year for mergers and acquisitions, and major financial entities would normally be rushing to the Hong Kong stock exchange's side for some sort of security.
HKEX has for weeks tried to woo policymakers and shareholders of LSE and get their nod on the merits of its initial bid valued at 83.61 pounds per share.
But LSE's response seemed to have been lukewarm unless there is a formal offer that addresses a host of important matters including corporate governance, sources said.
A recent Bloomberg report stated that the Hong Kong stock group has been in talks to borrow around 8 billion pounds to unlock further discussions and support its buyout proposal. Bankers who are studying their options whether to back the said acquisition have been weighing the possibility that the arrangement between HKEX and LSE will end up collapsing after LSE Group Plc's preliminary junking, sources disclosed.
Most financial institutions usually choose to operate on a cordial understanding as hostile deals can eventually break long-term partnerships with prospective customers. Some investors that have met with HKEX executives are worried that supporting the planned acquisition may hamper future ventures with Blackstone Group Inc., one of the United States' top fee payers, according to reports.
Meanwhile, at stake in the planned LSE takeover, whose deadline is set on Wednesday, is around $100 million in fees that lending facilities could earn from the Hong Kong bourse operator, a New York-based consulting agency said. Regardless of the outcome, HKEX should be able to find enough money for its proposal.