Hong Kong Stock Exchange Makes $37 Billion Offer for LSE -- 2nd Update
September 11 2019 - 7:34AM
Dow Jones News
By Steven Russolillo and Ben Dummett
Hong Kong's stock exchange made an unsolicited $36.6 billion
offer to acquire its London-based rival, a deal that would unite
two of the world's major trading hubs when both are under severe
political pressure.
Hong Kong is reeling from a summer of increasingly violent
protests, with scenes of tear gas and Molotov cocktails playing out
virtually every weekend on live television. London, meanwhile, is
gripped by political paralysis as successive governments fail to
find a way to implement an exit from the European Union due to take
place next month. Bankers in both cities are trying to figure out
whether things could get bad enough to force them to move out.
And yet Hong Kong Exchanges & Clearing Ltd. has picked this
moment to launch its biggest deal. A combination with the London
Stock Exchange would create a global leader in capital flows and
financial data by connecting developed and emerging markets in the
East and West. It would also thwart the LSE's ambitions to
transform itself from an exchange into a full-fledged data business
by acquiring financial-information provider Refinitiv Holdings
Ltd., which used to be part of Reuters, for $14.5 billion in
stock.
"You don't choose timing, you choose what is the right thing to
do," Charles Li, chief executive of the Hong Kong exchange, said
during a conference call Wednesday.
"This has nothing to do with Hong Kong's situation," he
added.
The London exchange criticized the offer as "preliminary and
highly conditional," It said it would consider the proposal but
remains committed to the Refinitiv deal.
The Hong Kong exchange said its offer -- valued at GBP29.6
billion in cash and stock -- represents a 22.9% premium to the
London exchange's closing stock price on Tuesday. It proposed
paying roughly a quarter of the purchase price in cash and the rest
in stock.
LSE shares, which have soared following the Refinitiv deal
announcement, jumped as much as 16% Wednesday before trimming some
gains.
The London Stock Exchange, which traces its history back
hundreds of years, has proven one of the world's most difficult
acquisition targets over the past two decades. German rival
Deutsche Boerse AG has twice failed to take over the exchange, as
has the technology-heavy U.S. exchange Nasdaq Inc. A Swedish
exchange and Australian investment bank Macquarie Group also
haven't completed takeovers.
Mr. Li, in a blog post on the Hong Kong exchange's website, said
the proposal comes after "many months of consideration" and marks a
milestone for the city, which has built itself into a global
financial center as China's economic growth has accelerated. He
said a partnership between the two exchanges "will strengthen ties
between the U.K. and China, particularly in economic and trade
terms."
Illustrating the unrest's pressure on Hong Kong's economy,
flagship carrier Cathay Pacific said Wednesday that its inbound
traffic fell 38% in August from a year earlier amid a slump in
tourism. Outbound trips also took a hit, and Cathay said
premium-class travel fell more than leisure travel, a sign of
pressure on business. The company expects September to be just as
difficult and said it was slowing its capacity additions for the
year.
The Hong Kong exchange first approached the LSE after the U.K.
exchange operator announced its deal with Refinitiv, and the two
sides have held preliminary discussions, according to a person
familiar with the matter.
The Hong Kong exchange decided to make its offer public so that
shareholders of both companies could assess its merits, the person
said.
"We are looking forward to further conversations and to take a
deeper dive," Mr. Li said on Wednesday.
Hong Kong is a crucial throughway for capital flows into and out
of China. The exchange was the world's biggest for initial public
offerings last year, lifted by multibillion-dollar share sales by
several of China's most valuable technology and internet
companies.
The dollar value of new listings in Hong Kong has shrunk sharply
this year, and trading has slowed, as trade tensions, China's
economic slowdown and unrest in the city have dented market
sentiment.
Companies raised $9.5 billion via Hong Kong IPOs in the year
through Wednesday, or roughly 40% of the total raised in the same
period last year, according to Dealogic. In July, Anheuser-Busch
InBev SA halted a near-$10 billion listing of its Asian unit
blaming market conditions.
In August, the average daily turnover of securities traded on
HKEX fell 8.4% from a year earlier.
On Wednesday, however, China's Shanghai Henlius Biotech Inc.
began taking orders for an IPO worth up to $477 million, in what
would be the city's first sizable listing since July, and some
other companies are also gearing up for substantial market
debuts.
Julie Steinberg contributed to this article.
Write to Steven Russolillo at steven.russolillo@wsj.com and Ben
Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
September 11, 2019 08:19 ET (12:19 GMT)
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