- The Hong Kong Stock exchange on Wednesday proposed to buy the London Stock Exchange in a deal worth $37 billion, taking markets by surprise.
- But the offer would require the LSE’s $27 billion agreed takeover of Refinitiv to be dropped.
- Given the graveyard of past merger attempts with the LSE, combined with the planned deal for Refinitiv, the Hong Kong exchange’s plan has scant chance of success, say analysts.
- The Hong Kong Exchange fell 3.5% the day after the bid, showing signs that its own investors aren’t happy with the proposed deal.
- View Markets Insider’s homepage for more stories.
In a move that took markets by surprise, the Hong Kong Stock Exchange announced a plan on Wednesday to buy the London Stock Exchange for about $37 billion.
If the LSE’s board and shareholders are receptive, it would put the LSE’s $27 billion agreed takeover of Refinitiv in jeopardy. HKEX said its offer to buy LSE would be subject to LSE shareholders voting down or the board dropping the Refinitiv deal.
The Hong Kong Exchange fell 3.5% the day after the bid, showing signs that its own investors aren’t happy with the proposed deal.
“It’s a bold move and one that appears to have a low chance of success,” said Neil Wilson, chief market analyst at Markets.com.
LSE shares are trading up, but only about 5%, and that’s below the offer price. This suggests “investors are taking a long-cold look at this one and don’t think it has much chance of success,” says Wilson. “In fact, I’d say it’s a non-starter.”
LSE is ‘all-in’ on the Refinitiv deal
However, Wilson warned that if the LSE-Refinitiv deal went through, the merged company would actually be too large for companies like HKEX to bid for.
“It’s probably going to become too large for rivals like HKEX to swallow as a result,” Wilson said.
And the LSE said on Wednesday it is committed to sticking with its plan to buy Refinitiv.
“LSE is all in on the Refinitiv deal, so why would they pull out now for such a gamble?” Wilson said. “It doesn’t make sense.”
Ben Kelly, a merger arbitrage analyst at Louis Capital Markets in London, said that the deal is “opportunistic” based upon the weakness of the pound.
“We expect the optics here will be quite negative in the UK, both politically and from the press,” said Kelly in an emailed note to Markets Insider. “The idea of the UK stock exchange being taken over by a Hong Kong company which is 6% owned by Hong Kong seems like its likely to run up against quite a lot of opposition.”
Wilson added: “The UK government may not wish to see such a vital symbol of UK financial services strength, and indeed a strategic asset, to be owned by foreigners; effectively it would hand it over to the Chinese through the Hong Kong back door.”
Graveyard of past offers
There have been at least five past merger attempts with LSE – including two planned tie-ups with German rival Deutsche Boerse in 2004 and 2017 – but none had materialized, in part because of antitrust concerns and squabbles among management teams.
“Given the long and ignoble history of bids for LSE, we think there is a very high bar to clear in order for this to succeed,” he said. While the Hong Kong exchange already has a foothold in the UK via the London Metals Exchange, he said, “the LSE is a different ball game entirely.”