Hong Kong Exchanges and Clearing offices in Hong Kong, China. Picture: REUTERS/Bobby Yip
Hong Kong Exchanges and Clearing offices in Hong Kong, China. Picture: REUTERS/Bobby Yip

Hong Kong — Hong Kong Exchanges & Clearing (HKEX) abruptly dropped its £32bn unsolicited takeover bid for London Stock Exchange (LSE) after opposition from the UK company and a cool reception from Beijing.

HKEX’s board, which met over a public holiday on Monday after a weekend of violence, was concerned by the lack of engagement from the LSE, weeks after it initially approached the company, people familiar with the matter said.

The proposal did not  get support in China, where the official People’s Daily pointed to “persistent worries” about Hong Kong given the ongoing unrest, and instead promoted LSE’s existing tie-up with the Shanghai Stock Exchange. HKEX declined to comment.

The decision is a rare setback for HKEX CEO Charles Li, who saw London at the centre of trading between Eastern and Western markets. The withdrawal now leaves LSE, which viewed the HKEX bid as an unwelcome distraction, free to pursue its $27bn takeover of Refinitiv. It will take the 300-year-old bourse further away from a traditional exchange model and deeper into big data.

LSE said in a statement it “remains committed to and continues to make good progress on” the Refinitiv deal, which will face a shareholder vote in November and close in the second half of 2020.

LSE rebuke

HKEX, the region’s largest exchange by revenue, struggled to regain momentum after September’s stinging rebuke from LSE’s board. HKEX executives met LSE shareholders in London and New York to try to gain their backing for the takeover plan. The bourse also was in talks to borrow as much as £8bn to fund the purchase.

While the HKEX’s board continues to see a combination as “strategically compelling”, it is “disappointed that it has been unable to engage with the management of LSE in realising this vision, and as a consequence has decided it is not in the best interests of HKEX shareholders to pursue this proposal,” the exchange said in a filing on Tuesday.

Li’s LSE counterpart, David Schwimmer, has said he preferred direct access to China and did not need the former British colony as a conduit. The LSE in September rejected HKEX’s initial takeover proposal, citing complications ranging from political unrest in Hong Kong to potential problems with regulators.

Hong Kong has seen four months of increasingly violent unrest, sparked by a since-scrapped bill that would have allowed extraditions to mainland China. Protests expanded into a broader push for greater democracy, with thousands of protesters gathering on weekends and public holidays, often squaring off against police. In recent weeks, protesters targeted subway stations and businesses seen as pro-Beijing were vandalised.

HKEX shares have dropped about 7% since June, while LSE declined more than 6.7% after the HKEX announcement.

HKEX countered LSE’s cold response with a charm offensive, bringing in UBS Group   and HSBC Holdings  to try to persuade shareholders of the merits of its proposal.

“I don’t think the HKEX shareholders were keen for them to take on even more debt,” said Niki Beattie, founder of consultancy Market Structure Partners in London. “With the backdrop of unrest in Hong Kong, it probably would have been difficult for both sides to ignore it and that could be blown into something bigger on both sides. Therefore better to save face earlier on.”

Exchange companies have tried and failed to combine in recent years, as political, regulatory and economic considerations have foiled the efforts. The LSE’s attempted merger with Germany’s Deutsche Börse was ultimately abandoned, and Singapore Exchange’s bid for ASX was rejected by Australian regulators in 2011 because of national interest concerns.

“The complicated regulatory, technical and technological landscape in which we operate means we are resolutely focused on our ambitions, while also maintaining flexibility in our approach,” Li said in a blog post Tuesday.

With assistance from Manuel Baigorri and Iain Marlow

Bloomberg