The battle for the London Stock Exchange

Protesters in Hong Kong © Getty Images
Political turmoil in Hong Kong bodes ill for its bid

The Hong Kong stockmarket is muscling in on a tie-up between the London Stock Exchange and data provider Refinitiv. It is set to fail, says Matthew Partridge.

Last week’s takeover bid from Hong Kong Exchanges and Clearing (HKEX) for the London Stock Exchange (LSE) was met with a “withering rejection”, notes Christopher Williams in The Sunday Telegraph. The LSE called HKEX’s plans “simply not credible”. Regulators aren’t too happy about the deal either, with the Financial Conduct Authority making it clear that the proposed deal “would face tough regulatory hurdles, both in Britain and abroad”. The deal comes as the LSE is in the process of negotiating a “landmark” tie-up with Refinitiv, the former Thomson Reuters trading terminals business.

“It is not hard to see why” regulators around the world are going to have “major problems” with this deal, says Jeremy Warner in The Daily Telegraph. The LSE’s clearing business, with its “commanding” market share in a range of assets, means that it performs a “super-systematic” role in the financial system. While Hong Kong’s government only owns 6% of HKEX, the former colony’s chief executive has an “absolute” grip on the company since she “effectively appoints both the chairman and the chief executive” as well as half the board”. Even in “more clement times”, such political control would make this bid “extraordinarily problematic”.

Refinitiv looks a much better bet

Putting politics to one side, the deal should also be rejected because “it is bad for shareholders and wrong-headed in its strategy for the LSE”, says Nick King for City AM. In particular, the Hong Kong bid depends on the LSE dropping its $27bn bid for Refinitiv. Given that the Refinitiv takeover would allow the LSE “to become a global giant in data”, abandoning it in favour of a hook-up with the HKEX would not only be short sighted, but signal that the London exchange no longer has any ambitions in that area.

The Refinitiv takeover could improve the quality of the services that the LSE provides to its customers, adds Patrick Hosking in The Times. These include “more data and more analytical tools”, allowing capital to be allocated more efficiently, as well as the creation of more indices that enable investors to tailor their portfolios to their own circumstances. And some of the £575m of synergies expected by the LSE could be “passed on to customers in lower prices”.

Whatever happens to the two bids, the LSE is facing some longer-term problems, says Kate Burgess in the Financial Times. This includes the “sluggish” market in initial public offerings and a “precipitous” fall in follow-on funding (secondary offerings of shares) which have fallen from £13.45bn in the first half of 2018 to £8.8bn in the same period this year. This is partly due to “uncertainty over global growth…  and Brexit” but it also reflects a long-term shift away from public markets spurred by increased regulation and “ample” private capital.