- Charles Li Xiaojia, President of the Hong Kong Stock Exchange, said that the transaction would "redefine global capital markets for decades to come."
- The London Stock Exchange issued a statement saying that it will respond further in due course.
- Both Hong Kong and the United Kingdom face political difficulties as the Hong Kong Stock Exchange makes an offer.
The Hong Kong Stock Exchange (HKEX) announced on Wednesday that it will propose a merger plan to the board of directors of the London Stock Exchange Group, with a transaction value of £31.6 billion, to create a global market interconnection platform that is beneficial to Hong Kong, China and the United Kingdom.
Charles Li Xiaojia, President of the Hong Kong Stock Exchange, said that the transaction would “redefine global capital markets for decades to come.” Once successfully combined, it will form an exchange group covering three major time zones in Asia and Europe. The market value is expected to exceed $70 billion.
This merger proposal did not cause a warm response from the London Stock Exchange, however. The latter issued a statement saying that it will respond further in due course. Some analysts believe that the merger faces many uncertainties at this time, including social movements in Hong Kong and Brexit. The London side may be concerned that the future of the London Stock Exchange may be affected by Beijing.
Under the terms of the proposed transaction, HKEx intends to replace 1 share of the London Stock Exchange with 2,045 pence of cash and 2.495 new shares (ie, a price of approximately 8,361 pence per share), compared to the closing price of the London Stock Exchange on September 10, 2019. The premium of 6,804 pence per share is 22.9%. The stock price of the Stock Exchange rose by 15%.
Both Hong Kong and the United Kingdom face political difficulties as the Hong Kong Stock Exchange makes an offer. Hong Kong’s months of demonstrations have cast a shadow over the status and prospects of Asian financial centers. The situation of Brexit is unclear and brings great uncertainty. Analysts believe that Brexit will shock London’s status as a global financial center.
Li also admitted that “the current international situation is full of uncertainty, it may not be the best time to conduct huge cross-border transactions.” However, he also said that for strategic trading, there may never be perfect timing. “No one can guarantee success, but if you don’t try it, you will never succeed.”
The HKEx plans to list its shares on the London Stock Exchange when the proposed transaction is completed to show confidence in the UK. Li said that London is the most competitive city, and the current difficulties and challenges should not pose obstacles to its development prospects.
Reuters said the deal was intended to suggest a global trading platform to better compete with US exchanges. Previously, the London Stock Exchange had already intended to open up the Asian market, and established an interoperability mechanism with the Shanghai Stock Exchange, the rival of the Hong Kong Stock Exchange.
Markets.com analyst Neil Wilson said political concerns were at the forefront of the deal. “The British government may not want to see the iconic institutions of British financial services being held by foreigners, and it is still a strategic asset. In fact, it may be handed over to China through the back door of Hong Kong.”
On Wednesday, the Hong Kong Stock Exchange held a conference. Some reporters questioned that this move may worry British politicians about potential Chinese influence on the London Stock Exchange through Hong Kong if a deal is reached.
Many HKEx executives who participated in the meeting responded that the HKEx is not a Chinese company, nor a Hong Kong company, but a listed global company. At the same time, the Hong Kong Stock Exchange acquired the London Metal Exchange seven years ago. At that time, there were many concerns in this regard. However, in the past seven years, the HKEx has respected and extended the local supervision in London and invested a lot in it. The merger of the exchange will have the same effect.
With regard to the future governance structure of the combined group, the Hong Kong Stock Exchange said it has started dialogues with a number of UK and Hong Kong regulators and looks forward to a detailed discussion of the transaction with the London Stock Exchange Group and all relevant regulatory authorities. The HKEx also stated that the management team of the Stock Exchange will continue to operate the operations of the Exchange and participate in the management of the HKEx Group after the transaction is completed.