HONG KONG – Hong Kong Thursday made a surprise buyout of 30 billion pounds ($37 billion) to the London Stock Exchange.
The Hong Kong Stock Exchange said on Wednesday it had submitted an offer to the London Stock Exchange LSE (LNSTY) to bring the two companies together in a cash and stock deal worth £29.6 billion or £ 31.6 billion ($39 billion) including debt.
If this happens, the acquisition will create the world’s third largest stock exchange group behind the New York Stock Exchange and Nasdaq in terms of the value of listed companies.
It will also be the largest foreign acquisition of a listed company in the UK since TAK acquired Shire in 2018.
Hong Kong Chief Executive Charles Lee told reporters at a conference call that the deal “redefine global capital markets for decades to come,” This will strengthen Hong Kong’s position as the main link between mainland China, Asia and the rest of the world.
However, there are plenty of obstacles to be faced here. Hong Kong’s offer comes at a politically sensitive time. The uncertainty of Brexit casts a shadow over London’s role as a global financial center. Meanwhile, Hong Kong – Asia’s No. 1 financial center – has been shaken by months of pro-democracy protests sparked by fears that Beijing is tightening its grip on the city.
The Hong Kong government supports seven of the 13 stock market managers, including the CEO, according to its website. In addition, the President’s appointment is subject to the approval of Hong Kong Chief Executive Carrie Lam.
Analysts at Bernberg said the deal would give Hong Kong control of the stock markets in the UK and Italy, as well as the main infrastructure of European debt markets, and thus face “elevated political risks.”
“The London Stock Exchange is a critically important part of the UK financial system, so as you would expect, the government and the regulators will be looking at the details closely,” a government spokesperson said.
The offer is also conditional on the London Stock Exchange ending the proposed acquisition of Refinitiv, which was announced last month. The £22bn ($27bn) deal aims to turn the London Stock Exchange into a global markets giant to rival Michael Bloomberg.
In a statement, LSE described Hong Kong’s offer as “unsolicited.” They would consider the proposal but confirmed their commitment to the Refinitiv deal.
LSE shares rose as much as 11% on the news show in Hong Kong, before cutting those gains slightly.
“We express our admiration for the City of London and LSE for giving all stakeholders the opportunity to openly evaluate our transactions and conclude that it is a convincing deal,” LSE told reporters.
James Fok, head of HKEX strategy, said the deal was about “connecting the plumbing” between the two markets, giving investors and exporters access to a larger pool of capital.
HKEX had to overcome political objections to its takeover of the London Metal Exchange in 2012. Since then, it “invested heavily in the UK, created a lot of jobs and paid a lot of taxes,” and the London Metal Exchange has remained a “quintessential British institution,”
HKEX said it will seek a secondary listing on the London Stock Exchange after the deal is completed to reflect its commitment to the UK.