HKEX, which operates the primary stock market in Hong Kong, has offered £29.6 billion (about $37 billion) for its UK peer, equating to an implied value of 8,361 pence per share. That represents a premium of 22.9% to the LSE's closing price on September 10 and equates to an enterprise value of £31.6 billion.
It's been three years since Deutsche Börse made its last attempt to merge with the LSE, a €29 billion move that was eventually blocked by the European Commission in 2017. The British exchange was all gung-ho about that deal, but there's one element of HKEX's proposal that might make the LSE not so amenable this time around. The Hong Kong exchange said it would only move forward with the proposal if the LSE terminated its recent agreement to purchase Refinitiv from Blackstone for $27 billion.
The LSE's pact with Blackstone is an all-share deal that was revealed last month after weeks of rumors, one that would create a combined entity with annual revenue of $7.3 billion. The ethos behind the transaction was to bring together two businesses that might be capable of toppling longstanding rival Bloomberg by dramatically expanding the LSE's operations in foreign exchange and bond trades, with the help of Refinitiv units Tradeweb and FXall, as well as its presence in new markets across the globe. For Blackstone, meanwhile, the deal would be a rapid exit after the buyout giant bought a 55% stake in Refinitiv from Thomson Reuters last October, valuing the financial data unit at $20 billion.
So, is LSE likely to give the Refinitiv deal up for a new owner? It seems unlikely. The British entity has not dismissed the idea, but it did issue a statement calling the approach "unsolicited, preliminary and highly conditional" and saying it "remains committed" to the Refinitiv acquisition.
HKEX's rationale for the new proposal seems to be based on global connectivity. The exchange claims that the merger would create a "world-leading market infrastructure group" and strengthen the UK’s connections with Asia, giving the nation increased clout in one of the world's leading IPO markets. It may also help that HKEX has previous experience with UK exchanges, having paid £1.4 billion in 2012 to acquire the London Metal Exchange, one of the world's biggest industrial metals marketplaces.
In its announcement of the bid, HKEX also stated that the deal would "[r]einforce Hong Kong’s position as the key connection between Mainland China, Asia and the rest of the world." In that respect, the move comes at an interesting time, as relations between China and Hong Kong have been increasingly tense over the past few months due to protests against what many citizens of the administrative region see as political overreach from the mainland. Alibaba called off a planned $15 billion listing on the HKEX last month due to the turmoil. The proposed deal could help keep HKEX in the limelight for the right reasons.
HKEX’s ambition to further cement its London presence follows a broader trend of Asian investors across all industries increasingly turning to Europe for opportunities. This latest announcement comes only three weeks after Hong Kong heavyweight Li Ka-Shing agreed to buy London-listed brewer and pub business Greene King for an equity value of £2.7 billion. Just days ago, on continental Europe, Japanese pharmaceutical giant Sumitomo Dainippon Pharma agreed to acquire a handful of spinout companies and a 10% stake in Swiss drugmaker Roivant Sciences in a $3 billion deal.
While HKEX’s deal for the LSE is far from a sure thing, it is further proof of Europe’s attractiveness as an acquisition destination for Asian investors.
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