• Friday, March 29, 2024
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Hong Kong exchange proposes to buy LSE for £32bn

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Hong Kong Exchanges and Clearing has made a £32bn bid to buy the London Stock Exchange Group, in a move that threatens to upend the UK operator’s own blockbuster takeover and comes at a time of political turmoil in Hong Kong.

The operator of the Hong Kong exchange stunned investors with its proposal, which values LSE shares at £83.61 and is designed at “bringing together the largest and most significant financial centres in Asia and Europe”, it said in a statement on Wednesday.

The bid comes at a critical juncture for the global exchange industry as well as for Hong Kong and the UK politically. Exchange operators are increasingly shifting away from the bread and butter of trading into the business of supplying and monetising the data that is at the heart of markets. In late July, the LSE agreed to buy the

data and trading group Refinitiv for $27bn in an effort to take on global heavyweights such as Intercontinental Exchange.

HKEX, which counts the Hong Kong government as its largest shareholder, is offering £20.45 in cash and 2.495 newly issued HKEX shares for each LSE share. LSE shares, which have already had a blistering run this year, jumped as high as 16 per cent before settling down to £72.14, up 6 per cent on the day.

Analysts cautioned that the political opposition that had historically derailed tie-ups between national exchanges was likely to be particularly acute in this case.

A deal would see “a Chinese company acquire the primary equity markets of both the UK and Italy, as well as key infrastructure for European debt markets”, noted analysts at Berenberg. “We believe this transaction would face elevated political risks as a result.”

Andrea Leadsom, the UK business secretary, told Bloomberg TV that the UK would “look very carefully at anything that had security implications for the UK”.

The UK Treasury and the business department declined to comment.

Setting out the strategic rationale for the deal, the HKEX said it would allow the LSE to apply its ability to monetise market data in China and give London a greater chance to benefit as more securities are sold in renminbi outside mainland China. The deal would also give the Hong Kong group control of clearing house LCH.

One top 10 LSE shareholder said HKEX was “trying to diversify away from their Chinese exposure, which is why they are bidding now and not nine months ago”.

“Shareholders won’t be rushed to make a decision as we like the Refinitiv deal,” the shareholder added. “If this is an opening gambit by HKEX and they go 10 per cent higher, then it will be a case of what might happen in the short term to the LSE share price versus a five-year view on where the share price can go on a successful Refinitiv integration.”