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London Stock Exchange locked in new bid battle: Shock £32bn offer from Hong Kong rival set to be rejected

Updated: 17:27 EDT, 11 September 2019

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Investors in the London Stock Exchange (LSE) hope a bidding war will erupt after its Hong Kong rival launched a £32 billion takeover bid.

In a shock announcement, Hong Kong Exchanges and Clearing (HKEX) said it wanted to buy the 448-year-old British institution and create a 'global market infrastructure leader'.

But it is thought that the LSE will reject the offer and instead press ahead with its own £22 billion takeover of data firm Refinitiv, which is best known among City professionals for its trading terminal screens.

Shock: The surprise offer from Hong Kong has set the City alight with the possibility of other bidders moving in

The surprise offer from Hong Kong has set the City alight with the possibility of other bidders moving in.

Analysts speculated that the Intercontinental Exchange (ICE), which owns the New York Stock Exchange, and Chicago-based CME Group could be in the picture.

HKEX is just the latest foreign predator to try to take control of the LSE, known as one of the three pillars of the City along with the Bank of England and Lloyd's of London.

HONG KONG EXCHANGE ALREADY OWNS KEY CITY TRADING HUB

The Hong Kong stock exchange already owns a key City trading hub – where it sparked fury by hiking fees.

In 2012 it spent £1.4 billion on a takeover of the 450-year-old London Metal Exchange (LME), which still uses face-to-face trading to set the price of metal globally.

Bosses enraged LME traders by increasing their fees, triggering such an outcry they had to back down. Founded in 1891, the Hong Kong exchange is mostly owned by international investors such as BlackRock, but the Hong Kong government has a 6 per cent stake.

HKEX, partly owned by the Hong Kong government, said its bid can only go ahead if the Refinitiv takeover falls through.

Boss Charles Li likened the two firms to 'a corporate Romeo and Juliet', admitting that his exchange was late to approach the LSE, which was now 'engaged with another person'.

He said: 'We are a global company with global aspirations. This is a compelling transaction for the UK, the City of London, Hong Kong, for everybody.'

Shareholders must now choose whether to back the Refinitiv takeover or cash in and hand ownership to Hong Kong.

One major shareholder in both exchanges has told the Mail they would rather stick with the Refinitiv deal, and wait either for HKEX to up its offer or for another rival to swoop in.

Another told the Financial Times: 'Shareholders won't be rushed to make a decision as we like the Refinitiv deal.

'If this is an opening gambit and they go 10 per cent higher, then it will be a case of what might happen in the short term to the LSE share price versus a five-year view on where the share price can go on a successful Refinitiv integration.'

LSE branded the proposal 'unsolicited, preliminary and highly conditional' and said it was still backing its deal with Refinitiv.

Richard Hunter, head of markets at Interactive Investor, said: 'LSE is all-in on the Refinitiv deal so why would they pull out now for such a gamble?

REFINITIV TIE-UP HOLDS KEY

The audacious bid for the London Stock Exchange is crucially dependent on another deal falling through.

In July, the LSE sent ripples through the City when it announced a £22 billion buyout of US data firm Refinitiv.

Once a part of Thomson Reuters, Refinitiv is one of the world's biggest providers of financial data such as prices for stocks, commodities and currencies.

Its 19,000 staff serve more than 40,000 banks, hedge funds and finance firms and it is best-known for its Eikon data terminal. LSE shares have shot up since the deal was announced, with investors excited about the prospect of the stock exchange spreading into a rapidly growing niche.

They were due to vote on the deal later this year. But now LSE shareholders have a difficult decision to make, as the Hong Kong exchange will only buy it if the Refinitiv takeover is ditched. So far, analysts are edging towards the Refinitiv option.

Bank of America Merrill Lynch said the Hong Kong deal is 'complex, not knock-out – we like Refinitiv'.

'It doesn't make sense. The question now is whether this approach forces others to join the party and spark a bidding war.'

Analysts at Berenberg highlighted New York-based ICE and Chicago's CME Group as potential bidders.

LSE shares closed up a moderate 5.9 per cent, or 402p, to 7206p having jumped 16 per cent earlier in the day.

It has a long history of rebuffing undesired suitors, having turned down one every 2.5 years since it listed in 2000.

TOP BANKERS LOCK HORNS

Some of the City's most feted bankers are set to fight it out in the battle for the London Stock Exchange.

Representing the Hong Kong business trying to buy the LSE is Caroline Silver, 56, of New York investment bank Moelis & Co.

She is a veteran of stock exchange mega-deals, supporting Milan's Borsa Italiana during its merger with the LSE in 2007.

Silver also advised New York market owner NYSE Euronext on its £6.7 billion takeover by Intercontinental Exchange in 2013.

Against her are three investment banks already working for the LSE on its separate bid to take over data company Refinitiv. Goldman Sachs has provided investment banking chairman Francois-Xavier de Mallmann – known as FX – and Mark Sorrell, son of former WPP chief executive Martin.

It also employs Morgan Stanley, where former star lawyer turned investment banker Mark Rawlinson is on hand to offer guidance. His victories include helping Marmite maker Unilever fight off a £115bn takeover bid by Kraft Heinz in 2017.

And LSE has small investment bank Robey Warshaw, which helped Astrazeneca fend off a £96 billion raid by Pfizer in 2014.

Germany's Deutsche Boerse has attempted to merge with the LSE three times in 20 years.

LSE shares have rocketed 856.2 per cent over the past decade, and it now has a market value of £25.2 billion.

With worries mounting over China's influence in Hong Kong, there are fears a deal could allow the Asian superpower to infiltrate London's markets.

Neil Wilson, of Markets.com, said: 'Effectively it would hand the LSE over to the Chinese through the Hong Kong back door.'

UK Business Secretary Andrea Leadsom said the Government would 'look very carefully at anything that had security implications for the UK'.

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