Hong Kong Exchanges and Clearing Ltd. is proposing to buy London Stock Exchange Group PLC for US$37-billion, a deal that would scuttle LSEG’s friendly offer to acquire the financial-data provider Refinitiv Holdings Ltd.
The London Stock Exchange (LSEG) and the owners of Refinitiv – Blackstone Group Inc. and Thomson Reuters Corp. – announced that transaction just six weeks ago. The Hong Kong Exchange’s (HKEX) cash-and-stock proposal, which is not yet a formal bid, is contingent on the previous deal being scrapped, it said.
HKEX, whose largest shareholder is the Hong Kong government, is no stranger to capital markets in Britain, having acquired the London Metal Exchange seven years ago. It now must convince the LSEG board that a takeover translates into more value for shareholders and customers than bulking up with Refinitiv.
HKEX’s surprise overture comes at a time when Britain’s political scene is in turmoil over the looming Brexit deadline, which has sparked volatility in the British pound. Meanwhile, pro-democracy demonstrators have filled the streets of Hong Kong for the past 19 weeks to protest what they see as Beijing’s heavy hand over the territory.
The price of the proposed offer represents a premium of 23 per cent over LSEG’s closing price on Tuesday and 47 per cent over its price before it said it was working toward the Refinitiv deal on July 26. LSEG and the Refinitv partners made their official announcement on Aug. 1.
“Both businesses have great brands, financial strength and proven growth track records,” HKEX chief executive officer Charles Li said in a statement. “Together, we will connect East and West, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities.”
The suitor is pitching a takeover of LSEG partly as a way to capitalize on mainland China’s growing influence in global financial circles and the expansion of its currency around the world. Even there, trade tension with the United States has raised questions about the health of the Chinese economy.
LSEG shares surged 6 per cent to a company record of 7,206 pence (approximately $117.22) after the unsolicited approach. In a statement, the exchange operator called it an “unsolicited, preliminary and highly conditional proposal” and said its board would make a further announcement “in due course.”
The company said it remains committed to buying Refinitiv for US$14.5-billion in stock and plans to issue a deal circular in November.
The parties last month touted the deal as the creation of the world’s go-to markets operator and financial-data provider, with the aim of bypassing chief competitor Bloomberg LLC in the race to employ one-stop shopping for banks, trading houses and hedge funds.
It would give U.S. private-equity giant Blackstone Group and media company Thomson Reuters a 37-per-cent ownership stake in the combined entity and a less than 30-per-cent voting interest. They formed Refinitiv in 2018 in a spinoff of Thomson Reuters’ financial and risk division.
However, when LSEG announced the details of the acquisition of Refinitiv, the financial world took note of LSEG’s history of announcing transactions, only to have its plans ruined by rival bids or unfavourable regulatory decisions. It was frustrated in bids to acquire the operator of the Toronto Stock Exchange in 2011 and then the Deutsche Boerse in 2017.
Shares in Thomson Reuters fell 1.4 per cent to $88.07 on the Toronto Stock Exchange on Wednesday. The company is majority owned by Woodbridge Co. Ltd., the investment company of Canada’s Thomson family. Woodbridge also owns The Globe and Mail. Thomson Reuters spokesman David Crundwell said the company, which runs the Reuters news agency, had no comment on the HKEX proposal.
The HKEX offer looks attractive to LSEG shareholders and puts the Refinitiv deal in jeopardy, but it is not without its risks, said Aravinda Galappatthige, analyst at Canaccord Genuity Corp.
“Clearly an acquisition by the Hong Kong Stock Exchange would have its own political sensitivities,” he said in a note to clients.