The London Stock Exchange’s board will meet in coming days to decide on the Hong Kong bourse’s surprise US$39 billion takeover proposal, a source close to the British company said on Thursday, as the market poured cold water on the deal.
The unsolicited takeover offer is not expected to succeed given a preference among LSE investors for the exchange to complete its US$27 billion proposed acquisition of data and analytics group Refinitiv, the source said.
The exchange wants to focus on executing that deal, rather than risk it being derailed by the Hong Kong bourse, the source added. Hong Kong Exchanges and Clearing’s (HKEx, 00388.HK) offer requires the LSE to ditch the Refinitiv purchase.
But a person close to the Hong Kong exchange said a rejection of an initial approach was common in takeovers and HKEx was already considering its next step. Informal discussions between HKEx and LSE shareholders have begun, the person added.
The Financial Times reported on Thursday that HKEx was open to considering a higher element of cash in its offer, citing a person familiar with the matter.
The proposed deal, announced on Wednesday, aims to create an exchange powerhouse spanning Asia, Europe and the United States which would be better able to compete with US rivals such as Intercontinental Exchange and CME Group.
Shares in HKEx fell more than 3 percent on Thursday as investors raised concerns about the political and regulatory risks involved in its move to take over one of Britain’s marquee financial institutions.
The UK government said authorities would examine the proposed deal closely as the LSE was a “critically important part” of the British financial system.
A takeover could face regulatory scrutiny beyond British shores; the London bourse also owns the Milan exchange and has a significant American presence through its FTSE Russell Index subsidiary and LCH, its derivatives clearing house which dominates the US dollar swap market.
This means a deal could also draw the attention of watchdogs in Italy and the United States, which is locked in a trade war with China.
Another major sticking point is the requirement for the LSE to abandon its acquisition of financial information provider Refinitiv from US private equity firm Blackstone Group and Thomson Reuters Corp., the parent of Reuters News.
That deal, which went public in late July, caused LSE’s shares to leap 15 percent on hopes Refinitiv’s business would boost its long-term profitability. LSE said in a statement on Wednesday that it remained committed to the Refinitiv deal.
The Hong Kong bourse operator has 28 days to make a firm bid for the LSE, or walk away for six months.
Analysts said a perception that Beijing is exerting growing influence over Hong Kong could become another key sticking point for an LSE takeover, given the Hong Kong government’s close links with the HKEx. Reuters
– Contact us at [email protected]