Hong Kong Exchanges abandons LSE bid

Hong Kong Exchanges and Clearing said on Tuesday that it was ditching its £32bn offer for the London Stock Exchange.

"The board of HKEX continues to believe that a combination of LSEG and HKEX is strategically compelling and would create a world-leading market infrastructure group," it said.

However, having been unable to engage with the company's management, HKEX decided it is not in the best interests of its shareholders to pursue a deal.

HKEX announced last month that it had made an approach to the LSE, offering 2,045p per share in cash and 2.495 newly-issued HKEX shares.

The offer was contingent on LSE abandoning its previously-agreed $27bn deal to buy financial data and trading platform provider Refinitiv. LSE rejected the HKEX bid and insisted that it remained committed to the Refinitiv deal, which was agreed in August.

Responding to the withdrawal of HKEX's approach, LSE reiterated its commitment to the Refinitiv deal and highlighted "good progress".

"Regulatory approval processes are underway and shareholder approval for the transaction is expected to be sought at an extraordinary general meeting in November 2019," it said, adding that the transaction remains on track to close in the second half of next year.

At 1250 BST, LSE shares were down 5.2% at 7,062p.

Neil Wilson, chief market analyst at Markets.com, said: "A concerted charm offensive failed to pay off for the Hong Kong group as investors balked at the anti-trust, regulatory and deliverability issues that the tie-up implied. And, not least, LSE is fully committed to the Refinitiv deal. Finally, the premium on offer, though chunky, was not enough to compensate shareholders. There was never a cash element, just new shares in a HK-listed group.

"As we said at the time, this deal was a non-starter for a range of reasons, any one of which would have been enough to block a merger. Still we’re slightly surprised HKEX didn’t try again - the fact they didn't suggests their charms, dubious as they are, were completely lost on the big shareholders."

Michael Hewson, chief market analyst at CMC Markets, said: "In reality the HKEX deal was never a realistic possibility when set against a hostile management at the London Stock Exchange and a Chinese regulator who were lukewarm at best.

"Even if HKEX had decided to up their offer, the deal was of questionable merit, given the problems in Hong Kong right now, along with the exchange’s management structure, which raised concerns about Chinese possible government influence."

Russ Mould, investment director at AJ Bell, pointed out there have been several failed attempts to acquire the LSE over the past two decades, including ones from Nasdaq and Intercontinental Exchange of the USA, Australia’s Macquarie Bank and Deutsche Boerse, "so another unsuccessful approach merely adds to a long list".

"The HKEX approach was likely to prove particularly problematic, given the potential for political involvement. The UK Government, and the authorities in the City, may well have looked askance at the prospect of Chinese influence over the LSEG, given China’s influence over HKEX, since the Hong Kong government appoints more than half of HKEX’s board. The latest round of pro-democracy, pro-reform protests in Hong Kong raised the stakes even further."

London Capital Group analyst Jasper Lawler said: "Of course there is always the issue of valuation, but we think the HK bid failed for much the same reason the previous effort from Deutsche Boerse did. A clear unwillingness to sell from LSE management and most shareholders.

"There is a well known sideline issue that may be contributing to this anti-sale attitude. At a time of financial uncertainty before the UK leaves the EU, few British shareholders want to see the nation's stock exchange in foreign hands."