LSEG London Stock Exchange Group Plc

By Samuel Agini

Of Financial News

Hong Kong Exchanges & Clearing Ltd. (0388.HK) will continue its pursuit of the London Stock Exchange Group PLC (LSE.LN) despite having its 31.6 billion pound ($38.97 billion) takeover bid rejected by the coveted U.K. bourse, according to people close to the deal.

Those people said the LSE's actions now raise the prospect of a "hostile" takeover by HKEX, although the Asian stock market operator's preference is to continue to engage in discussions and see the bid get a "fair hearing" by LSE management and other stakeholders.

The London Stock Exchange rejected HKEX's bid on Sep. 13, saying it sees "no merit in further engagement."

HKEX stunned the City this week with its bid to buy the LSE, which in August announced its $27 billion takeover bid of data and trading group Refinitiv.

The LSE said: "The board has fundamental concerns about the key aspects of the conditional proposal: strategy, deliverability, form of consideration and value. Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement."

The Hong Kong exchange held talks with regulators before making the bid, the people said, and is concerned that its offer is being dismissed by LSE management and the market without having in-depth conversations.

Roger Barron, a partner at law firm Paul Hastings, said HKEX's actions to date suggest the exchange is prepared to use "quasi-hostile tactics." Noting that Asian buyers do not typically go "all-out hostile," Mr. Barron, who advised Deutsche Boerse on its failed merger with the LSE when he was at Linklaters, said: "They will be publicly and privately putting pressure on the board of London."

HKEX's offer was contingent on LSE shareholders rejecting the U.K. exchange's $27 billion takeover of Refinitiv, announced in August. That deal would create a trading and data powerhouse in the heart of the City at a time when the U.K.'s status as an international finance centre is under threat from Brexit.

While the Refinitiv deal was widely welcomed in the City, boosting the LSE's share price, HKEX's approach was met with a lukewarm response from several shareholders. People close to the deal said HKEX would like the same scrutiny to be applied to both proposals.

In its statement, the LSE said it is making "good progress" with Refinitiv and will be seeking shareholder approval for the deal in November. It expects to complete the takeover in the second half of next year.

The LSE is being advised by bankers at Goldman Sachs, Morgan Stanley, Robey Warshaw, Barclays and RBC Capital Markets. HKEX is working with independent advisory firm Moelis & Co.

HKEX's fear is that its proposal is not being accessed on its merits, which include the opportunity to create an Anglo-Asian powerhouse that connects London's sophisticated and international capital markets to fast-growing Chinese wealth.

Investors and analysts had already raised concerns about the viability of the Hong Kong proposal, pointing to a number of potential political pitfalls. Handing ownership of prized U.K. financial market infrastructure to a company with close ties to China, at a time of increasing geopolitical tensions, would be a step too far for authorities, analysts warned.

Earlier this week, Christopher Giancarlo, the former head of the U.S. Commodity Futures Trading Commission, said Washington would have "great concern" about the deal.

He told Financial News: "I wouldn't expect U.S. authorities to have inordinate concern over the equity business of the LSE. The issue would be in the derivatives clearing. This would be of great concern to U.S. regulators."

The people familiar with the matter said HKEX is committed to putting in place appropriate governance structures and safeguards to provide assurances.

Hong Kong decided to go public with its bid two days after a meeting on Monday Sept. 9 between HKEX chief executive Charles Li, chairman Laura Cha, and their counterparts at the LSE, David Schwimmer and Don Robert. The LSE was surprised by the proposed takeover, a person familiar with the matter said.

Website: www.fnlondon.com

(END) Dow Jones Newswires

September 13, 2019 09:32 ET (13:32 GMT)

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