Global Exchange Deals Prove Hard to Achieve -- WSJ
October 10 2019 - 3:02AM
Dow Jones News
By Ben Dummett and Anna Isaac
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 10, 2019).
London Stock Exchange Group PLC's dismissal of the Hong Kong
exchange's almost $37 billion takeover attempt underscores the
challenges global exchanges face trying to complete cross-border
deals amid geopolitical upheaval.
Hong Kong Exchanges & Clearing Ltd. made its audacious move
in September on its London-based rival, betting the deal would
solidify its role as a gateway for the flow of capital between
mainland China and Western markets. But it came less than two
months after the LSE and its recently appointed Chief Executive
David Schwimmer agreed to acquire Refinitiv Holdings Ltd. for $14.5
billion, with the intention of becoming a fully fledged financial
data provider.
The LSE board quickly rejected the HKEX approach, arguing the
Refinitiv deal made more strategic sense and would more easily pass
regulatory muster. The Hong Kong exchange responded Tuesday by
pulling its offering, arguing that pursuing the deal didn't make
sense without any input from LSE's management.
Typically, the Refinitiv deal would be reason enough for the LSE
to look askance at the HKEX bid, as it required an end to that
tie-up, which shareholders had wholeheartedly supported. LSE shares
dropped more than 5% after the HKEX bid was rescinded. Its shares
remain up more than 70% for the year, much of those gains coming
since the announcement of the Refinitiv deal.
"Any bid was going to have to be a knock out bid because the
share price has performed so well recently in response to the
Refinitiv deal," Russ Mould, investment director at AJ Bell, which
provides investment platforms and stockbroker services, said
Wednesday.
LSE had even more reason to dismiss HKEX's overtures given its
previous failed attempts to complete big cross-border deals. In
2011, it tried unsuccessfully to merge with Canada's TMX Group Ltd.
In 2017, an attempt to join forces with Germany's Deutsche Boerse
AG also foundered.
Those failures came amid domestic concerns over foreign
ownership of a crucial part of Canada's capital markets, the head
office location for the proposed LSE-Deutsche Boerse company and
the risk of such a deal creating a combined entity with
monopolistic pricing power.
Since then, the challenge of pushing through cross-border deals
has risen further, amid concerns that some Chinese companies are
using acquisitions to gain access to assets ranging from technology
to sensitive data and financial information. Regulators in the U.S.
and Europe have both moved in recent years to broaden their
scrutiny of bids for key assets by foreigners.
"The issue of greater Chinese influence over the City of London
would be a hard-sell for a lot of people," Mr. Mould said.
Last year, the Chicago Stock Exchange ended its two-year effort
to sell a major stake to Chinese investors after the proposal
sparked worry the deal could imperil the security of the U.S.
financial system, even though the market handled less than 1% of
U.S. stock trading volumes.
Hong Kong is a semiautonomous city. But China's encroachment has
sparked months of protests against the local government,
heightening investor concerns over China's future influence over
the exchange.
"The political situation in Hong Kong, the influence of the Hong
Kong authorities over the HKEX board and by extension, the Chinese
authorities was difficult," Mr. Mould said.
The Hong Kong exchange's withdrawal didn't surprise analysts.
The proposed tie-up would have been "a very difficult deal to
deliver, both because exchange mergers are fraught with
complications and because of potential U.S. worries about the
ownership of LCH," the London exchange's majority-owned clearing
unit, Bank of America Merrill Lynch, said.
HKEX had signaled its confidence in ultimately winning
regulatory approval for the LSE tie-up, saying that it had held
discussions "with a broad set of regulators" as part of its
negotiating effort.
Still, the company would have faced an uphill battle in the
U.K., if not other jurisdictions. The U.K. Financial Conduct
Authority and the Bank of England worried that China would have
access to key data moving between the HKEX and LSE, as well as
critical market infrastructure such as LCH, people familiar with
the matter said.
By rejecting HKEX's takeover offer, LSE places itself under more
pressure to deliver on its promises from the Refinitiv tie-up,
which include more than GBP350 million ($428 million) in annual
cost savings. The London exchange expects the deal to close in the
second half of 2020, but must first conduct its own lengthy
regulatory review and a complex integration process to meet its
targets.
It also faces the prospect of competing directly with Bloomberg
L.P., whose terminal competes against Refinitiv's Eikon product and
commands a market-leading 32.6% share based on revenue, according
to data information firm Burton-Taylor International
Consulting.
Write to Ben Dummett at ben.dummett@wsj.com and Anna Isaac at
anna.isaac@wsj.com
(END) Dow Jones Newswires
October 10, 2019 02:47 ET (06:47 GMT)
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