The London Stock Exchange Group, on Friday, rejected in strong terms the unsolicited £32bn takeover bid made by Hong Kong Exchanges and Clearing, expressing what it termed “fundamental concerns” about the feasibility, value, and structure of the offer.
The Hong Kong Exchange had shocked the LSE and the global market earlier in the week with its £83.61 a share cash and shares offer, representing a premium of 12.29% on its £74.46 closing price per share on Friday.
A breakdown of the offer by HKEX showed that £20.45 per share was by way of cash, while shareholders of LSE will get 2.495 newly issued HKEX shares.
But in its letter to HKEX’s chairperson, Laura Cha, and Chief Executive Charles Li, by its Chairman, Don Robert, the LSE raised concerns that three-quarters of Hong Kong’s offer would be in shares, as well as the likely problems the takeover would have in gaining approval from global regulators. “The ongoing situation in Hong Kong adds to this uncertainty,” it said.
It insists the HKEX merger lacked “strategic merit and would be a “significant backward step,” expressing both surprise and disappointment that the Hong Kong Exchange proceeded to publish its “unsolicited proposal” barely two days after informing the LSE aware of its plans.
Furthermore, Robert believes that the ongoing political upheaval in Hong Kong could make any deal unattractive to shareholders before noting that the price offered by HKEX falls short of how LSE itself values the business.
″…Even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv,” it said.
“There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters. Accordingly, your assertion that implementation of a transaction would be ‘swift and certain’ is simply not credible,” the LSE added.
The LSE, which is trying to secure its own future with the $27bn purchase of data and trading group Refinitiv, said it had been “disappointed” by HKEX’s decision to go public on Wednesday, only two days after the two sides had first met.
The Hong Kong exchange, however, hopes to stop LSE’s purchase of Refinitiv before shareholders vote on the deal at the end of the year. Many investors have backed the strategy to pivot towards data as laid out by David Schwimmer, LSE’s chief executive.
In essence, the LSE said its “board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement.”
Undaunted, however, HKEX expressed disappointment, vowing it would continue to discuss the deal with the LSE’s shareholders it was disappointed that the London exchange’s board had “declined to properly engage”.
HKEX said it “believes that shareholders in LSEG should have the opportunity to analyze in detail both transactions and will continue to engage with them.”
Analysts say HKEX’s bid comes at a time of social upheaval in the Asian financial hub and questions about Hong Kong’s autonomy from China, as well as continued convulsions over Brexit in the UK. The LSE cited concerns about the role played by the territory’s government, which can appoint seven of HKEX’s 13 board members.
Charles Li, HKEX’s longstanding CEO, argues that his proposal is superior to the Refinitiv deal because it would allow the combined group to benefit from the growing links between China’s capital markets and the rest of the world. Mr. Li is trying to make his company a “department store” for investors looking to increase their exposure to China.