Hong Kong Exchanges and Clearing Ltd (HKEX) has made a surprise £29.6 billion) bid for the London Stock Exchange, in a move that could disrupt the LSE’s own move to acquire data provider Refinitiv for $27 billion.
The stock and futures market operator is majority owned by the Hong Kong government. It said the move would “reinforce Hong Kong’s position” as a central component to ongoing liberalisation of Chinese markets.
“The Board of HKEX believes a proposed combination with LSEG (London Stock Exchange Group) represents a highly compelling strategic opportunity to create a global market infrastructure leader” the company said today.
Hong Kong Exchanges and Clearing Ltd: 6 Key Synergies
HKEX cited the “migration of HKEX’s trading and clearing platforms to LSEG’s technology, the revenue uplift in key businesses from cross-selling and innovation opportunities and a reduction in HKEX’s capital expenditures in connection with existing systems and future investment plans” as synergies.
If the offer is accepted it would upend the LSE’s bet on Refinitiv, the former financial and risk unit of Thomson Reuters, which would have seen the London bourse double down on a data-driven future. Instead it would create a major global trading powerhouse with stock, derivatives and commodities exchanges.
HKEX cites six key outcomes to the deal, which it says would:
Create a market infrastructure group “ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China”
- Elevate the UK’s role in “capturing the significant growth opportunities presented by… the emergence of RMB as a global reserve currency, securing London’s position as the global centre for both Eurodollar and offshore RMB”
- Reinforce Hong Kong’s position as helping provide “a trusted and clear path for the continued opening up of mainland China’s capital markets
- Enable the creation of “unique and valuable data sets for global investors, through the combination of LSEG’s global data and analytics capabilities and distribution channels, and HKEX’s access to China, the world’s most digitalised growth economy”
- Make it easier for companies to access equity capital across the world,” through the IPO and secondary fundraising markets in London, Hong Kong, Milan, and Mainland China via the Connect programmes; and…”
- Offer innovation opportunities in equities, fixed income, currencies, commodities and derivatives products… and help strengthen transparency, resiliency and risk capabilities in both London and Hong Kong.
The LSEG responded to the move with a comment noting the “unsolicited, preliminary and highly conditional proposal to acquire the entire share capital of LSEG.”
The Board of LSEG will consider the proposal and will make a further announcement in due course, it said, adding that it “remains committed to and continues to make good progress on its proposed acquisition of Refinitiv Holdings Ltd.”
HKEX’s bid may prove politically unpalatable to competition authorities.
While HKEX succeeded in acquiring the London Metal Exchange for £1.4 billion in 2012, LSE’s own attempt to merge with Deutsche Boerse in 2016 was scuppered by EU competition commissioner Margrethe Vestager who said the deal would have created “a de facto monopoly in the crucial area of fixed income instruments.”