HKEX beats a retreat from London Stock Exchange takeover bid

published 10 October 2019

London Stock Exchange © Getty Images — Regulators would have thwarted the LSE's tie-up with Hong Kong

Hong Kong's stockmarket operator has abandoned its bid for the London Stock Exchange. It always looked unlikely to work. Matthew Partridge reports.

Hong Kong Exchanges and Clearing (HKEX) will have to put its plans for "creating a global capital markets operator" on ice after abandoning its £32bn offer for the London Stock Exchange (LSE), says the Financial Times. It continues to insist that there was a "compelling rationale" for the merger, but it has recognised that its "charm offensive" has failed to persuade either the LSE's board or its investors. This was partly down to the "insufficient" amount of money that it was offering and the fact that HKEX's offer depended on the LSE giving up its plans to buy trading and data group Refinitiv for $27bn.

It's no wonder the deal failed, says Alex Brummer in the Daily Mail. A merger with Hong Kong would have offered the LSE "a huge window on Asia". But the role of Hong Kong's government in appointing the board of HKEX raised a "potentially insurmountable" governance barrier: given the ongoing repression in Hong Kong, it is "hard to see" authorities in London, Brussels and New York allowing the London clearing house, "home to trillions of pounds of derivatives contracts", to fall into "unsafe hands".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

HKEX's bid for the LSE may have made little sense, but it provided an opportunity to ask "hard questions" about the Refinitiv deal, says Jim Armitage in the Evening Standard. These include why the LSE has chosen to buy the business now when it, and every other exchange, "decided against buying it a couple of years ago", and why it wants a company "led by trading terminals inferior to Bloomberg's". At the very least, some "cynical" questioning from "outside the fee-hungry City bubble would have been nice".

A blessing in disguise?

HKEX needs to pay attention to what the mainland exchanges are doing, says The Wall Street Journal. This is because they are starting to compete with Hong Kong by moving "to build their own links with the West". As a result, HKEX could find that it no longer has a monopoly on access to the Chinese market, allowing the LSE and other Western exchanges to bypass it entirely. Note that this year saw the first stock offering made via the Shanghai-London Stock Connect, an arrangement that ultimately aims to make Chinese shares available to UK investors and vice versa.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri