Why Hong Kong wanted the London Stock Exchange so badly, and how its decision to wait a year could cost it the deal
- The decision to attempt a takeover of the UK exchange was made at a meeting of HKEX directors in September 2018, according to a source
- Hong Kong was in a much stronger position to buy the LSE a year ago, given today’s economic uncertainty and the political crisis engulfing the city, say analysts
On a sunny day in September 2018 the directors of Hong Kong’s stock exchange gathered in a hotel meeting room to discuss the best way to take the bourse forward. They reached a bold decision – they would try to buy the London Stock Exchange (LSE) to create a giant trading framework that bridges east and the west.
The meeting, which lasted a whole day, covered every aspect of a three-year strategic plan (2019 - 2021) for the exchange, according to a source who wished to remain anonymous. It included a range of suggestions to add new products and measures to boost the status of the exchange, to make it the leading asset management platform in Asia and bolster its role as a gateway for mainland China investment.
It was during this conference that Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing, and some of his advisers presented the idea of using mergers and acquisition as a short cut for the bourse operator to diversify its business model away from a focus on the initial public offerings of Chinese companies.
The HKEX, however, did not act immediately on its plan to buy its London counterpart and may now have missed the boat.
“It is much harder for the HKEX to proceed with the LSE acquisition now than a year ago given the global economic situation. Most importantly, the anti-government protests in recent months have hit market turnover hard as well as the international image of Hong Kong,” said Clement Chan Kam-wing, managing director of accounting firm BDO.
It wasn’t until September 11 this year that HKEX surprised the market with an unsolicited offer of US$36.6 billion in cash and new shares to acquire the centuries-old LSE.
The local bourse, which operates Asia’s third-largest market, must now make a formal offer – possibly an improved one – before a deadline at close of business next Wednesday (October 9), according to the UK takeover code. If passed, it would be the largest exchange merger in history.