In a somewhat surprising move, the Hong Kong exchanges and Clearing (HKEX) have proposed a £31.6 billion merger deal, which would see the HKEX take over the London Stock Exchange (LON: LSE).
The LSE said it “will consider this proposal and will make a further announcement in due course”. It described the proposal as, “unsolicited, preliminary and highly conditional”.
The conditionality is important, with the deal being subject LSE’s £22 billion deal to buy data giant Refinitv falling through. In the meantime, the London Stock Exchange said it, “remains committed to and continues to make good progress on its proposed acquisition of Refinitiv”. However, based on the closing value of the LSE’s shares on the 10th of September, the £31.6 billion price tag offered by the Hong Kong exchange represents a 23% premium.
HK exchange Chairman, Laura Cha, said that the proposal represents,
“[A] highly compelling strategic opportunity to create a global market infrastructure group, bringing together the largest and most significant financial centres in Asia and Europe”.
Charles Li, Chief Executive of HKEX, added,
“Together, we will connect east and west, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities.”
This move, if successful, could mark one of many snatch-ups of key business assets in the UK, with a weak pound making it open season for foreign investors, even in sectors of strategic importance. It wouldn’t be the first, either, with a £4.6bn deal agreed for UK pubs operator Greene King (LON: GNK) by Hong Kong tycoon Li Ka-Shing.
The deal would also be the largest in the LSE’s history, and regarding Brexit, it is a hammer blow against the drum-beating nationalists who lauded the opportunity to take back control. If the UK hopes to be a free market trading hub, and its own hub for free market trade is owned by a non-UK benefactor, where is the control?
Ben Marlow of the Telegraph says it best,
“The timing of a blockbuster bid for the London Stock Exchange from its Hong Kong counterpart could not be worse for a Government desperate to reposition itself as the pre-eminent global free trading hub.”
“The City will be pivotal to any such attempt to build a thriving economy outside of the European Union and the LSE is the beating heart of the Square Mile. Yet the irony of the EU referendum is that it has turned UK companies into sitting ducks.”
“The pound is at record lows, stock prices have tanked, and debt has never been cheaper, paving the way for any overseas investor with even modest aspirations to pick off targets at will. Blue-chip firms have been falling like dominoes.”
He goes on to point out that the government should fear not only further foreign buy-ups but the potential ramifications of our government’s inaction. With China tightening its grip on Hong Kong, the success of this proposal could have worrying strategic implications for the UK going forwards.
Last year the government supposedly tightened its Takeover Code, but that didn’t stop investment firm Melrose from breaching faith and shutting down a factory of its GKN acquisition within a year. The government’s lax attitude is not only bad for business but it is damaging to the fabric of society – it should be enough to inspire some resentment that our leaders are willing to let key parts of our way of life be bought up for momentary gain, irrespective of the long-term strategic, social and economic damage.
If we can only afford hollow laughter, then take at least some enjoyment from this empty response from Business Secretary Andrea Leadsom, who heard about today’s approach for the London Stock Exchange while live on Bloomberg,
“We’re always keen to see foreign direct investment, and collaboration with different international interests.”
“But we’d have to look very carefully at anything that potentially had security implications for the United Kingdom.”
Going forwards we should ask ourselves, if a deal like this is justifiable in the name of growth and ‘good business’, then what isn’t? This kind of nihilistic hand-to-mouth, mercantile attitude has some place in the darkest recesses of merchant banking, but in matters that are innately tied to international strategy and statecraft, it makes any kind of patriotic post-Brexit look laughable – come and buy us, everything is for sale here.
Elsewhere in large financial player and macro economic news, there have been updates from; Lloyds Banking Group PLC (LON: LLOY), Jo Johnson quitting, Hilary Benn’s Brexit delay bill, Parliament being prorogued, Barclays (LON: BARC) and Deutsche Bank (ETR: DBK).