(Bloomberg) -- The man who runs Hong Kong’s stock exchange compared his silent longing and sudden bid for its London counterpart to the tale of Romeo and Juliet. Unlike Shakespeare’s hero, Charles Li turned out to be an unwanted suitor.
On Friday, London Stock Exchange Group Plc Chairman Don Robert released one of the more scathing rejections of a corporate takeover offer in recent British memory, issuing a laundry list of geopolitical and business reasons why the LSE finds Hong Kong Exchanges & Clearing Ltd.’s $36.8 billion bid wanting. Here are some of its many criticisms.
There’s not enough cash in the bid, which is too low anyway.
“Three-quarters of your proposed consideration is in HKEX shares, representing a fundamentally different and much less attractive investment proposition to our shareholders.“Even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation.”
Hong Kong’s unrest makes that stock even less attractive.
“We see the value of your share consideration as inherently uncertain. The ongoing situation in Hong Kong adds to this uncertainty. Furthermore, we question the sustainability of HKEX’s position as a strategic gateway in the longer term.”
Then there’s HKEX’s unusual relationship with its government.
- “We are not a Chinese company,” Li said Wednesday. He even claimed “we are not even a Hong Kong company,” referring to its international aspirations. LSE begs to differ.
“There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters,” the LSE said.
- The Chinese territory’s government holds 6% of HKEX’s stock and appoints 6 of the 13 board members. The city’s chief executive -- a person appointed by Beijing -- picks HKEX’s chairman.
That relationship will concern U.S. and other authorities.
“Your proposal would be subject to full scrutiny from a number of financial regulators, as well as governmental entities under, for example, the U.K. Enterprise Act, the CFIUS [national security] process in the U.S., and the ‘golden powers’ regime in Italy,” the LSE said. “Your assertion that implementation of a transaction would be ‘swift and certain’ is simply not credible. We judge that the approval processes would be exhaustive and that support from relevant parties, vital for the transaction, is highly uncertain.”
LSE already has a bridgehead in China: Shanghai.
This “is our preferred and direct channel to access the many opportunities with China,” the LSE said.
- They worked long and hard to get it: the Shanghai exchange interlisting project dates to 2015, when former finance minister George Osborne traveled to China to court officials. After a long wait while LSE sought Chinese approvals, Huatai Securities Co. became the first Stock Connect listing in London in June.
LSE doesn’t see the point of scrapping its Refinitiv deal.
- LSE wants the former Thomson Reuters financial and risk business to transform itself into a global force in data and trading platforms. Stock investors like the $27 billion proposal, which sent LSE shares surging even before HKEX came knocking.
The Refinitiv move took “many months of strategy development, deep consideration and discussion,” the LSE said.
- HKEX hasn’t said much publicly about why it thinks Refinitiv is a bad move, but two people familiar with HKEX’s thinking have said choosing the Asian bourse’s deal instead would add to LSE’s profit more quickly. They also said a successfully completed Refinitiv deal would make LSE too big to buy.
LSE also slammed HKEX’s own business as old-school.
“The high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSEG strategically.”
Robert ended the letter with a final dig. “Given the fundamental flaws in your proposal, we see no merit in further engagement.”
--With assistance from Aaron Kirchfeld and Viren Vaghela.
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