Hurdles mount for Hong Kong Exchange’s $36.6 billion London bid

The Hong Kong Exchanges & Clearing Ltd. plan to take over London Stock Exchange Group Plc is running into multiple obstacles less than 24 hours after the surprise bid was launched, with the U.K. bourse leaning toward rejecting the offer in its current form, according to people familiar with the matter.
HKEX shares fell as much as 3.8%, while LSE is trading at about 14% below the offer price, highlighting skepticism such a deal will get done. LSE declined to comment.
LSE must decide between HKEX’s offer on Wednesday and its own plan to acquire Refinitiv to become a global data powerhouse. If LSE decides to fend off HKEX’s bid for the marketplace, it can count on some powerful allies. While the takeover represents a vote of confidence in London as a post-Brexit financial hub, officials in the U.K. and U.S. are likely to look skeptically at the prospect of Chinese links to the world’s biggest venue for handling interest-rate swaps.
“Shareholders who previously welcomed the proposed acquisition of Refinitiv will be seeking assurances that the strategic rationale will not be undermined by a successful bid for LSE,” said Rhona Millar, an investment analyst at Aberdeen Standard Investments which holds LSE shares.
Shares in LSE initially rose as much as 16% after HKEX said it wanted to combine the exchanges in a cash-and-stock deal that valued the London firm at 29.6 billion pounds ($36.6 billion). However, the stock pared gains as analysts raised doubts about the deal gaining approval from shareholders and global regulators.
“The London Stock Exchange is a critically important part of the U.K. financial system, so as you would expect, the government and the regulators will be looking at the details closely,” said a spokesperson for the U.K. government on Wednesday. “We cannot comment further on commercial matters.”
The government has the power to intervene in mergers on public interest grounds.
LSE senior managers were blindsided by the offer, said another person familiar with the situation, who asked not to be named discussing matters that aren’t public on Wednesday. Internally, recent meetings have concentrated on the significant benefits of the Refinitiv deal, the person said.
With global political tensions rising – including protests in Hong Kong and U.S. President Donald Trump’s trade war with China – commercial arguments may not be the most compelling. U.S. regulators last year rejected a bid by a Chinese-linked consortium to take over the Chicago Stock Exchange, a deal that then-candidate Trump blasted when it was announced in 2016.
Both firms have been involved in exchange merger deals in recent years, with LSE failing in its attempt to combine with Deutsche Boerse AG and HKEX acquiring London Metal Exchange in 2012. Dinesh Nair & Viren Vaghela, Bloomberg