HKEX abandons plans to bid for London Stock Exchange

Maria Nikolova

The Board of HKEX has decided it is not in the best interests of HKEX shareholders to pursue this proposal.

Less than a month after London Stock Exchange Group plc (LSEG) rejected an approach by Hong Kong Exchanges and Clearing Limited (HKEX) for a possible offer for its entire share capital, HKEX said it would not be making an offer for LSEG.

In an announcement published on its website earlier today, HKEX confirms that it does not intend to make an offer for LSEG.

The Board of HKEX continues to believe that a combination of LSEG and HKEX is strategically compelling and would create a world-leading market infrastructure group. Despite engagement with a broad set of regulators and extensive shareholder engagement, the Board of HKEX is disappointed that it has been unable to engage with the management of LSEG in realising this vision, and as a consequence has decided it is not in the best interests of HKEX shareholders to pursue this proposal.

HKEX, and any person acting in concert with HKEX, reserves the right to announce an offer or possible offer or make or participate in an offer or possible offer for LSEG or to take any other action which would otherwise be restricted under Rule 2.8 of the Code within six months following the date of this announcement in the following circumstances: (a) with the agreement or consent of the board of LSEG; (b) if any third party announces a firm intention to make an offer for LSEG; (c) if LSEG announces a “whitewash” proposal or a reverse takeover; (d) if the UK Panel on Takeovers and Mergers determines that there has been a material change of circumstances; or (e) otherwise with the consent of the Panel.

Let’s recall that, under HKEX’s proposal, LSEG shareholders would have received 2,045 pence in cash and 2.495 newly issued HKEX shares per LSEG share. The Proposed Transaction implied a value for each LSEG share of c. 8,361 pence. This would imply a value for the entire issued and to be issued ordinary share capital of LSEG of approximately £29.6 billion, implying an enterprise value of £31.6 billion (inclusive of net debt and other adjustments of approximately £2.0 billion as at 30 June 2019).

On September 13, 2019, the Board of LSEG, together with its financial and legal advisers, said it had considered the unsolicited, preliminary and highly conditional proposal from HKEX. The Board said it had fundamental concerns about the key aspects of the Conditional Proposal: strategy, deliverability, form of consideration and value. Accordingly, the LSEG Board unanimously rejected the Conditional Proposal and, given its fundamental flaws, sees no merit in further engagement.

In particular, LSEG noted that three-quarters of the proposed consideration is in HKEX shares, representing a fundamentally different and much less attractive investment proposition to LSEG shareholders, as LSEG sees the value of HKEX share consideration as inherently uncertain.

Further, the value fell substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value LSEG expects to create through our planned acquisition of Refinitiv.

In addition, LSEG said it did not believe HKEX provides it with the best long-term positioning in Asia or the best listing / trading platform for China. LSEG insisted it values its mutually beneficial partnership with the Shanghai Stock Exchange which is its preferred and direct channel to access the many opportunities with China.

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