The London Stock Exchange’s board will meet in coming days to decide on the Hong Kong bourse’s surprise $US39 billion ($A57 billion) takeover proposal, a source close to the British company says, as the market poured cold water on the deal.
The unsolicited takeover offer is not expected to succeed given a preference among LSE investors for the exchange to complete its $US27 billion proposed acquisition of data and analytics group Refinitiv, the source close to the LSE said on Thursday.
The exchange wants to focus on executing that deal, rather than risk it being derailed by the Hong Kong bourse, the source said.
Hong Kong Exchanges and Clearing’s (HKEX) offer requires the LSE to ditch the Refinitiv purchase.
But a person close to the Hong Kong exchange said a rejection of an initial approach was common in takeovers and HKEX was already considering its next step. Informal discussions between HKEX and LSE shareholders have begun, the person said.
The Financial Times reported on Thursday that HKEX was open to considering a higher element of cash in its offer, citing a person familiar with the matter.
An LSE spokeswoman declined to comment.
The proposed deal, announced on Wednesday, aims to create an exchange powerhouse spanning Asia, Europe and the United States that would be better able to compete with US. rivals such as Intercontinental Exchange Inc and CME Group Inc.
However shares in HKEX fell more than 3.0 per cent on Thursday as investors raised concerns about the political and regulatory risks involved in its move to take over one of Britain’s marquee financial institutions.
The UK government said authorities would examine the proposed deal closely as the LSE was a “critically important part” of the British financial system.
However, a takeover could face regulatory scrutiny beyond British shores; the London bourse also owns the Milan exchange and has a significant American presence through its FTSE Russell index subsidiary and LCH, its derivatives clearing house which dominates the US dollar swap market.
This means a deal could also draw the attention of watchdogs in Italy and the United States, which is locked in a trade war with China.
HKEX declined to comment.
The Hong Kong exchange’s indicative offer for the LSE also received a cool reception in London, where LSE shares finished up 5.9 per cent on Wednesday, far short of the proposed takeover’s implied premium.
Another major sticking point is the requirement for the LSE to abandon its acquisition of financial information provider Refinitiv from US private equity firm Blackstone Group Inc and Thomson Reuters Corp, the parent of Reuters News.
HKEX has 28 days to make a firm bid for the LSE, whose shares closed up nearly 1.0 per cent at 7,274 pence on Thursday or walk away for six months.