On 11th September, the Stock Exchange of Hong Kong (HKEX) proposed to London Stock Exchange (LSE) a merger of nearly 37 billion US dollars. If this merger becomes successful, the newly formed Eurasian giant is perceived to possibly bring about challenges to some highly competitive stock exchange houses in the US.
However, the offer presented by HKEX appeared to be a less attractive one to LSE due a previously announced bid on Refinitiv a few months ago. Once Refinitiv joins LSE, the deal volume will be much more than that of HKEX, which does not give any comfort for the merger proposal from HKEX.
On 13th September, LSE publicly announced its reply to HKEX on the proposal to merge, stating that HKEX is not a strategic target in their consideration. The risks and uncertainty behind joining HKEX are rather unpredictable.
Many tend to think that the unprecedented Brexit without a clear way out will impact London being one of the financial centers, theoretically, buying LSE sounds possible and feasible now. However, none of the matters relating to Brexit affected the evaluation and assessment of risks behind the proposal from HKEX.
LSE does have the intention to engage in the Asian market, but a partnership is coming into shape with the Shanghai Stock Exchange (SSE) by means of establishing mutual mechanism ‘Shanghai-London Connect’ on auditors conducting auditing works reciprocally. Due to this ongoing process of connecting with SSE, it is not of much urgency for LSE to seek another partner in Asia in the short time being, a refusal sounds not unpredictable.
On 14th September, HKEX responded with some disappointment but insisted that they will not give up at the same time.
7 years ago, HKEX bought the London Metal Exchange, which is still running independently from Chinese management. Therefore, it is not surprising to see opinions in support of the independent management of LSE without much political risks if this merger would take place. In 2017, the German Stock Exchange (DBG) attempted to bid for LSE but the effort had also gone into vain. This could invite reasons that instability in political environment is not the only consideration in managing the business post-merger.
LSE has taken the Italian Stock Exchange in Milan into its group as early as in 2007. It would surely create a truly East-to-West giant if LSE merges with HKEX. As the refusal from LSE has been sent out, some have eyed on SSE. China is still a country with plenty of market opportunities, it is not strange to see more Western capitals flowing in and out this huge market via other more stable partners.
Global Connect Admin B.V. | Xuan Hao