Hong Kong Exchanges and Clearing is racing against the clock to make a formal bid for the London Stock Exchange Group by Wednesday’s deadline after the LSE has indicated a substantial uplift to the preliminary £32bn proposal and its terms is needed to unlock further discussions.
The Hong Kong group has undertaken a three-week charm offensive with LSE shareholders and regulators to persuade them of the merits of its preliminary stock-and-cash proposal worth £83.61 a share. But LSE shareholders have been unwilling to back its approach without a formal bid that addresses a range of issues including governance, said two people involved in the discussions.
HKEX has attempted to win investor support after its unsolicited approach was rejected by the LSE, which is pursuing a $27bn deal to buy data and trading group Refinitiv. It has until 5pm Wednesday to make a bid, possibly revising the terms of its initial proposal, or walk away for at least six months unless it can get the LSE to the negotiating table.
LSE shareholders have been wary over HKEX’s proposal, with some looking for an offer closer to £90 a share with a larger cash component. Three-quarters of HKEX’s proposal is in shares.
Others doubt the Hong Kong exchange will be able to clear antitrust and regulatory approvals. “We don’t think Hong Kong is going to end up owning the LSE,” said Mark Yockey of Artisan Partners, a top-15 shareholder in the LSE.
One top-10 shareholder’s European team was more open to a deal than its Asian counterpart, according to a person with knowledge of the discussions.
Another leading shareholder said: “Some of our reservations with the HKEX deal are fundamental, but others can be addressed. Changing the structure of the deal to address shareholder concerns — that’s they key to success if they think it is possible.”
HKEX’s interest comes at a time of social unrest in the Asian financial hub and questions about Hong Kong’s autonomy from China. The territory’s government can appoint seven of HKEX’s 13 board members.
Shareholders and the LSE have raised concerns over whether a combination can pass US markets regulators and a committee that monitors foreign investments that impinge on US interests.
Central to HKEX’s vision is LCH, the LSE-controlled clearing house that is a linchpin in the global financial system. LCH’s interest rate swaps business is the world’s largest processor of US dollar-denominated swaps. Although its primary regulator is the Bank of England, the clearing house is also has some direct oversight from the CFTC.
HKEX and the LSE declined to comment.