Hong Kong exchange drops US$39b offer for LSE

Shanghai

HONG Kong Exchanges & Clearing (HKEX) will not proceed with its US$39 billion unsolicited takeover bid for the London Stock Exchange Group (LSE).

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 HKEX said in an exchange filing on Tuesday. In September, LSE rejected HKEX's initial takeover proposal, citing complications ranging from political unrest in Hong Kong to potential problems with regulators.

HKEX then countered with a charm offensive, bringing in UBS Group and HSBC Holdings to try to persuade shareholders of the merits of its proposal, Bloomberg reported.

"The whole offer was a farce," Christopher Cheung, a Hong Kong lawmaker and HKEX shareholder, said in a phone interview.

"When HKEX announced the offer, I thought they've already had discussions with London Stock Exchange and their regulators. It turns out they have not. HKEX now must address the danger of stagnant business growth."

LSE investors were due to vote on the acquisition of data provider Refinitiv before the end of the year. HKEX's pursuit depended on LSE walking away from that deal.

Under UK takeover rules, HKEX has until Oct 9 to make a formal offer or walk away for at least six months.

Before Tuesday's about-face, Asia's largest exchange by revenue has been attempting to regain momentum after last month'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 £8 billion (S$13.5 billion) to fund the purchase.

Shareholders, though, expressed support for the LSE board's preferred strategy of spending US$27 billion to buy Refinitiv.

At a London conference last month, HKEX chief executive officer Charles Li envisioned London at the centre of trading between East and West with the help of Hong Kong.

His LSE counterpart, David Schwimmer, said he preferred direct access to China and didn't need the former British colony as a conduit.

"The complicated regulatory, technical and technological landscape in which we operate means we are resolutely focused on our ambitions, whilst also maintaining flexibility in our approach," Mr Li said in a blog post on Tuesday. "We are honest with ourselves too - as we know some things we try will not develop at the speed which we would like, or in some cases, at all. Our goal is to keep moving forward, reinforcing HKEX's role and building Hong Kong's strength as a financial market." BLOOMBERG

READ MORE: Hong Kong left exposed by HKEX surrender on LSE