Hong Kong Exchanges Woo London Stock Exchange; Be Wary Of Ulterior Motives

HONG KONG-Britain-exchange-takeover-business-STOCKS

Flags of the Stock Exchange of Hong Kong flying next to the Chinese national flag and the Hong Kong SAR flag, outside the exchange offices in the Central district of Hong Kong on September 11, 2019.(Photo by Nicolas ASFOURI / AFP) (Photo

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Hong Kong Exchanges and Clearing (HKEX) shook the market in London as it launched an unsolicited £31.6 billion cash-and-share ($39 billion) takeover bid for the London Stock Exchange Group (LSEG, Trades as LSE).

HKEX, said in a statement on Wednesday:

"The board of HKEX believes a proposed combination with LSEG represents a highly compelling strategic opportunity to create a global market infrastructure leader,"

However, the offer is contingent on the LSE abandoning its acquisition of the data company Refinitiv.

HKEX suggest that the tie up would bring synergies, a global footprint and prove advantageous in competing in the world against established platforms such as the Intercontinental Exchange Inc (ICE) in New York and the widereaching CME Group.

The indication of a bid sent the price of the LSEG soaring with a range on Wednesday, September 11 of 6694.76 to 7891.35 as at 12:08 BST. Prices have backed away from the high as LSEG said it remained committed to its proposed $27 billion acquisition of Refinitiv. It is a deal prospect that is aimed at transforming the LSEG into a market data and analytics giant. It was reported to be progressing extremely well.

HKEX, already has a base in London as it is the owner of the London Metal Exchange (LME), and it said it had played a key role in underpinning the City of London's position as a pre-eminent global center for metals trading.

"HKEX is fully committed to supporting and building the long-term roles of both London and Hong Kong as global financial centers,"

This move comes at an interesting time as the U.K. is on course to leave the EU on October 31, unless the prime minister backtracks and seeks an extension until January 31, 2020. Maybe, HKEX sees an opportunity to strike a deal at a time when many fear leaving the EU and a potential loss of “passporting” in Euro denominated products could serve to weaken its crucial financial sector.

The key shareholders in Refinitiv, Blackstone (majority) declined to comment Thomson Reuters (minority) had no immediate comment.

One must wonder if this really is a good move for LSEG? At the moment, HKEX faces a background of political unrest as pro-democracy protesters persist in their standoff with the authorities. These demonstrations are now running their fourth month.

The protests are taking a toll that may impact turnover and revenue in the second half of the year, hot on the heels of a 21% fall in trading fees in the first half of 2019. Not the track record one wants to have when proposing such a deal, the very essence of which is based upon the principles of trust and confidence.

If one has any concern that the fundamentals that underpin the relationship between the People’s Republic of China and Hong Kong. “One Nation, Two Systems” are being eroded then this deal should not happen. The agreement reached was that with the handover in 1997 of Hong Kong from Britain, China would guarantee Hong Kong's economic and political systems until 2047. That promise looks more tattered with every passing day.

I may be seen as cynical, however, could this be an opportunity for China to get a grip on one of the U.K.’s financial crown jewels and exert influence just as it has established leverage over other sovereign nations in the “One Belt, One Road” scheme.

It appears that may shareholders in LSEG approve of the Refinitiv deal as the LSE has sought to diversify away from basic trading and clearing to data and analytics. Judging by the retreat of the LSEG share price from the high, i.e. -9.62%, the market does not believe the proposed deal will happen. I hope they are right.

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Hong Kong Exchanges and Clearing (HKEX) shook the market in London as it launched an unsolicited £31.6 billion cash-and-share ($39 billion) takeover bid for the London Stock Exchange Group (LSEG, Trades as LSE).

HKEX, said in a statement on Wednesday:

"The board of HKEX believes a proposed combination with LSEG represents a highly compelling strategic opportunity to create a global market infrastructure leader,"

However, the offer is contingent on the LSE abandoning its acquisition of the data company Refinitiv.

HKEX suggest that the tie up would bring synergies, a global footprint and prove advantageous in competing in the world against established platforms such as the Intercontinental Exchange Inc (ICE) in New York and the widereaching CME Group.

The indication of a bid sent the price of the LSEG soaring with a range on Wednesday, September 11 of 6694.76 to 7891.35 as at 12:08 BST. Prices have backed away from the high as LSEG said it remained committed to its proposed $27 billion acquisition of Refinitiv. It is a deal prospect that is aimed at transforming the LSEG into a market data and analytics giant. It was reported to be progressing extremely well.

HKEX, already has a base in London as it is the owner of the London Metal Exchange (LME), and it said it had played a key role in underpinning the City of London's position as a pre-eminent global center for metals trading.

"HKEX is fully committed to supporting and building the long-term roles of both London and Hong Kong as global financial centers,"

This move comes at an interesting time as the U.K. is on course to leave the EU on October 31, unless the prime minister backtracks and seeks an extension until January 31, 2020. Maybe, HKEX sees an opportunity to strike a deal at a time when many fear leaving the EU and a potential loss of “passporting” in Euro denominated products could serve to weaken its crucial financial sector.

The key shareholders in Refinitiv, Blackstone (majority) declined to comment Thomson Reuters (minority) had no immediate comment.

One must wonder if this really is a good move for LSEG? At the moment, HKEX faces a background of political unrest as pro-democracy protesters persist in their standoff with the authorities. These demonstrations are now running their fourth month.

The protests are taking a toll that may impact turnover and revenue in the second half of the year, hot on the heels of a 21% fall in trading fees in the first half of 2019. Not the track record one wants to have when proposing such a deal, the very essence of which is based upon the principles of trust and confidence.

If one has any concern that the fundamentals that underpin the relationship between the People’s Republic of China and Hong Kong. “One Nation, Two Systems” are being eroded then this deal should not happen. The agreement reached was that with the handover in 1997 of Hong Kong from Britain, China would guarantee Hong Kong's economic and political systems until 2047. That promise looks more tattered with every passing day.

I may be seen as cynical, however, could this be an opportunity for China to get a grip on one of the U.K.’s financial crown jewels and exert influence just as it has established leverage over other sovereign nations in the “One Belt, One Road” scheme.

It appears that may shareholders in LSEG approve of the Refinitiv deal as the LSE has sought to diversify away from basic trading and clearing to data and analytics. Judging by the retreat of the LSEG share price from the high, i.e. -9.62%, the market does not believe the proposed deal will happen. I hope they are right.

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