Rolling coverage of the latest economic and financial news, the LSE rejects proposed merger with HKEX
That implies the City is expecting further takeover drama, either from the now-rebuffed HKEX or another major rival.
Newsflash: The Hong Kong Exchanges and Clearing has responded to the LSEs rebuttal – and is refusing to go away quietly.
It also defends its proposal, saying it is in the best interests of shareholders, customers and global markets.
It added: “Even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv.”
The Board of HKEX continues to believe that the proposed combination with LSEG represents a highly compelling strategic opportunity to create a global market infrastructure leader.
Intriguingly, HKEX says it has held constructive initial discussions with regulators and policymakers (it doesnt say where, but presumably they include London?).
And despite the LSEs refusal to engage further, HKEX says it plans to continue engaging with shareholders….
This chart from the @UMich survey caught my eye: a big chunk of consumers expect rate cuts next year. Will the Fed deliver? pic.twitter.com/EYkdD62qrq
Looks like Donald Trumps message has got through to Americans – well find out at next weeks Fed meeting whether Jay Powell is among them…
The Michigan Consumer Sentiment index, just released, has risen to 92.0 for September, beating Augusts 89.8. Thats also better than the 90.9 which Wall Street expected.
Still down on Julys punchy 98.4, but it may calm worries that the US economy is weakening. Of course, if consumers are less gloomy, theres less need to cut interest rates as Donald Trump is demanding on an almost daily basis.
In a separate letter sent to HKEX, LSEG said the board was “surprised and disappointed” that the approach was published just two days after they had received it.
Umich Consumer Sentiment 92 vs 91 Above Expectations as well… Eco-Ticians and Recessionists get it wrong once again…
The Dow Jones industrial average is up 62 points, or 0.23%, in early trading at 27,245. Mining stocks, financial companies and industrial firms are among the risers.
That reflects optimism that the US-China trade war is thawing, now that Beijing has dropped new tariffs on American soybeans and pork imports.
The LSE said its board unanimously rejects the proposed takeover from Hong Kong Exchanges and Clearing (HKEX) and said it sees “no merit” in holding talks with the suitor.
Zimbabwes eye-watering interest rate hike, from 50% to 70%, is presumably an attempt to calm its inflation rate, which is acceleratingly alarmingly.
According to official data, Zimbabwes inflation rate almost doubled in July, to 175% year-on-year. Unofficial estimates suggest it is much higher, as shortages of food and fuel leave citizens facing sharply higher prices every day.
Heres Roger Barron, M&A Partner at law firm Paul Hastings, on the London Stock Exchanges move:
Its unsurprising that they have rejected this approach as the fact it was unsolicited means that the bidder must have known it wouldnt have been popular – if it had they would have tried to agree a recommended bid and maintain confidentiality.
The LSEs firm rejection of HKEXs takeover approach isnt a surprise, says Neil Wilson of Markets.com.
Unattractive, offering a puny dowry and coming with volatile and unpredictable parents, HKEX never looked like the ideal bride. No great surprise to see the LSEG board has politely but firmly rejected the HKEX bid.
The letter to HKEX is not full of praise. In fact the letter from chairman Don Robert scolds HKEX for making public the highly speculative bid only days after telling LSEG.
The question now is whether the Americans come in with a counter offer. Shares are holding around the £73 level, suggesting there could be some interest. A knockout premium would be the price, but as we saw with Sky/Comcast, its not that far-fetched if the prize is deemed of enough strategic importance.
The LSE has also sent a blisteringly critical letter to the HKEX, explaining why its approach has been soundly rejected.
The LSEs chair, Don Robert, begins by chastising HKEXs chair, Laura Cha, and CEO Li Xiaojia, for going public with their proposed merger, saying:
We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it.
The high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSEG strategically.
Your proposal would be subject to full scrutiny from a number of financial regulators, as well as governmental entities under, for example, the UK Enterprise Act, the CFIUS process in the US, and the golden powers regime in Italy. There is no doubt that your unusual Board structure and your relationship with the Hong Kong government will complicate matters.
We see the value of your share consideration as inherently uncertain. The ongoing situation in Hong Kong adds to this uncertainty.
4) The offer, worth £31.6bn, value falls substantially short of an appropriate valuation of LSEG (currently worth £25bn).
Taking all of these factors into account, the Board unanimously rejects your proposal. Given the fundamental flaws in your proposal, we see no merit in further engagement.
In a terse statement to the stock market, the LSE says it has considered the £32bn proposal made on Wednesday, and concluded it is fundamentally flawed.
Further to the announcement on 11 September 2019, the Board of London Stock Exchange Group plc (LSEG), together with its financial and legal advisers, has now considered the unsolicited, preliminary and highly conditional proposal from Hong Kong Exchanges and Clearing Limited (HKEX) to acquire the entire share capital of LSEG (the Conditional Proposal).
The Board has fundamental concerns about the key aspects of the Conditional Proposal: strategy, deliverability, form of consideration and value. Accordingly, the Board unanimously rejects the Conditional Proposal and, given its fundamental flaws, sees no merit in further engagement.
LSE adds that it remains committed to its takeover of financial data service Refinitiv — a deal which is meant to turn the exchange into a challenger to Bloomberg.
Nick Marro, Global Trade Lead at The Economist Intelligence Unit, says Chinas decision is a clear sign of goodwill.
He believes that dropping the new tariffs on pork and soybeans could help deliver progress at the US-China talks next month. But a full trade deal still looks a long way away.