The London Stock Exchange (LSE) has rejected a £32bn takeover offer from Hong Kong Exchanges and Clearing (HKEX), citing “fundamental concerns” around the bid.
LSE said it saw “no strategic merit” in the proposed takeover, which would have put an end to its mammoth $27bn (£22bn) merger with Refinitiv.
“The board has fundamental concerns about the key aspects of the conditional proposal: strategy, deliverability, form of consideration and value,” LSE said.
“Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement.”
London Stock Exchange’s share price rose two per cent as the market digest the rebuffed bid, leaving shares at around 7,402p.
The stock exchange said it remained committed to its deal with Refinitiv, which will see the group expand its global presence and set up a new rival to data provider Bloomberg.
In a letter setting out the reasons for the rejection, LSE also criticised the way in which the Hong Kong bourse approached the takeover.
“We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it,” LSE wrote.
HKEX’s offer implied a value for each LSE share of around 8,361p, giving an enterprise value of £31.6bn. This represented a premium of 23 per cent to LSE’s 10 September, and would have been the largest deal in the exchange’s history.
LSE attempted a merger with Deutsche Boerse in 2017, but the deal was blocked by EU competition regulators.
“Unattractive, offering a puny dowry and coming with volatile and unpredictable parents, HKEX never looked like the ideal bride,” Markets.com’s Neil Wilson said.
“No great surprise to see the LSE board has politely but firmly rejected the HKEX bid.”
The reasons LSE set out in its letter included:
Refinitiv deal is better for LSE
LSE decided that HKEX’s bid did not suit it as well as the strategy it is already executing – its tie-up with Refinitiv to build a financial data giant, which it said was”critical” to its future.
“In stark contrast, the high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSEG strategically,” LSE wrote.
The Hong Kong deal may not come off
What’s more, LSE would be taking a huge risk. For the deal with HKEX to go ahead, LSE would have to abandon its stated strategy of acquiring Refinitiv – but there’s no guarantee regulators would allow it to merge with Hong Kong’s stock exchange.
Meanwhile, London Stock Exchange told HKEX “your unusual board structure and your relationship with the Hong Kong government will complicate matters”.
London Stock Exchange shareholders would lose out
The merger would be three-quarters funded in HKEX shares, meaning LSE shareholders would not get the bang for their buck that they might wish for.
LSE called it “a fundamentally different and much less attractive investment proposition to our shareholders”. “We see the value of your share consideration as inherently uncertain,” it added.
£32bn bid undervalues LSE
London Stock Exchange also accused Hong Kong Stock Exchange of undervaluing its business with the £32bn bid when it takes into consideration the value it can generate with Refinitiv.
“Even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv,” the stock exchange said.