London Stock Exchange unequivocally rejects HKEx takeover bid

Vintage U.K. five pound noteVintage U.K. five pound note

The London Stock Exchange Group rejected Hong Kong Exchanges and Clearing’s around 29.6 billion pound (S$50.56 billion or US$36.85 billion) takeover bid in no uncertain terms, saying it had “fundamental concerns” about the proposal, including whether it would even be permitted.

“The board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement,” LSEG said in a statement filed to the exchange Friday.

In its letter to HKEx, LSEG added, “We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it.”

In the bid published Wednesday, HKEx had offered 2,045 pence in cash and 2.495 newly issued HKEx shares for each share of LSEG. That implies a value of around 8,361 pence per LSEG share, based on the closing price of HK$245.20 per HKEx share Tuesday, HKEx said.

The HKEx bid was conditional on LSEG terminating its proposed acquisition of Refinitive. In August, LSEG offered to acquire Refinitive in an all-share deal with an enterprise value of US$27 billion.

LSEG said the consideration from HKEx would be unattractive, with much of it coming from HKEx shares which have an uncertain value.

“The ongoing situation in Hong Kong adds to this uncertainty,” LSEG said in the letter. “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.”

LSEG said the HKEx bid lacked the strategic merit of the Refinitive deal.

“Our planned acquisition of Refinitiv meets LSEG’s strategic objectives across its businesses which the Board believes to be critical for a leading Financial Markets Infrastructure provider of the future,” the letter said. “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.”

LSEG also questioned whether HKEx could deliver on its professed position as a strategic gateway to China in the longer term.

“We value our mutually beneficial partnership with the Shanghai Stock Exchange which is our preferred and direct channel to access the many opportunities with China,” LSEG said.

The London exchange also pointed to the many regulatory bodies that would need to scrutinize the deal, including in the U.K., the U.S. and Italy.

“Your assertion that implementation of a transaction would be ‘swift and certain’ is simply not credible,” the letter to HKEx said. “On the contrary, we judge that the approval processes would be exhaustive and that support from relevant parties, vital for the transaction, is highly uncertain.”

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