London Stock Exchange rejects HKEX acquisition offer due to “fundamental flaws”

Maria Nikolova

The proposal’s value is said to fall substantially short of an appropriate valuation for a takeover of LSEG.

London Stock Exchange Group plc (LSEG) has published an announcement rejecting the offer made by the Hong Kong Exchanges and Clearing Limited earlier this week for the entire share capital of LSEG.

Let’s recall that, under HKEX’s offer, 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).

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

LSEG notes 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 falls 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 says it does not believe HKEX provides it with the best long-term positioning in Asia or the best listing / trading platform for China. LSEG insists 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.

LSEG stresses its commitment to its proposed acquisition of Refinitiv Holdings Ltd. Regulatory approval processes are under way and a circular is expected to be posted to LSEG shareholders in November 2019 to seek their approval of the transaction. The transaction remains on track to close in the second half of 2020.

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