Looks like Brexit isn’t the Only No Deal: Hong Kong rejected by London

September 26, 2019

2 min read

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What's going on here?

The London Stock Exchange has rejected Hong Kong’s £38 billion takeover bid.

What does this mean?

Hong Kong Exchanges and Clearing (HKEX), one of the world’s most active boards for IPOs and listings, offered to buy the London Stock Exchange (LSE). However, the LSE’s board unanimously rejected the proposal, stating it was too low, politically risky and lacked strategic merit.

Slaughter and May landed the lead corporate role for the Hong Kong Stock Exchange, with the team led by partner David Watkins. The LSE Group is a longstanding client of Freshfields Bruckhaus Deringer and is likely to have called upon the firm for advice in this matter.

What's the big picture effect?

The transaction posed a severe risk and lacked value for shareholders, said LSE chairman Don Robert. The HKEX would not provide the LSE with the best trading platform for China; a country with the highest number of companies wanting to list in the world. It would not even provide the LSE with the best positioning in Asia. It should be noted that London’s partnership with the Shanghai Stock Exchange earlier this year – the London-Shanghai Stock Connect scheme (for our article on that click here) – is already its preferred and direct channel to mainland China.

Robert also raised concerns about the continued social unrest in Hong Kong; the situation gives rise to significant uncertainty. It is unsettling that the Hong Kong government had the power to appoint a majority of the HKEX board, as this will also inevitably politicise matters. However, the HKEX Chief Executive, Charles Li, majorly downplayed the impact of political factors, such as the unrest in Hong Kong and Brexit, on their respective exchanges. The HKEX has a plethora of reasons to push its bid, including providing Hong Kong with a means to stabilise the financial impact of the current political volatility.

Furthermore, Hong Kong’s offer was conditional on the LSE terminating its £22 billion deal to acquire Refentiv, a global provider of financial markets data and infrastructure. The deal is set to close in the second half of 2020, but the Hong Kong exchange is seeking to break it before shareholders can vote on it at the end of the year. However, the London exchange has said it remains committed to the acquisition, through which it hopes to rival the likes of Bloomberg.

Immediately after LSE rejected the proposal, HKEX itself raised the prospect of a hostile takeover bid, by directly reaching out to shareholders with offers. However, due to worries about Hong Kong’s stability, this may be more difficult. Ultimately, Hong Kong sees no reason to fold in the face of this abrupt rejection – they have already called on HSBC and UBS to help it charm LSE shareholders. Another proposal is likely on the horizon.

Report written by Sarina Johal

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