Hong Kong Exchanges and Clearing (HKEX) has made a surprise takeover bid for the London Stock Exchange Group (LSE.L), proposing to merge the two companies.
The LSE’s shares soared more than 10% on news of the proposed offer from the Hong Kong exchange group, which would see it valued at around £31.6bn ($39.1bn). Shares then fell back to around 6% higher in afternoon trading.
Charles Li, chief executive of HKEX, which also owns the London Metal Exchange, said the move would “redefine global capital markets for decades to come.
HKEX made clear its offer would only go ahead if the LSE abandoned its plans to buy financial Refinitiv. The LSE agreed to the purchase of the financial information provider a few weeks ago, in a deal aimed at offering trading across regions and currencies.
HKEX described the two companies as “highly complementary” in a statement released on Wednesday.
The group said the move would help the UK capture growth opportunities from mainland China and the rise of the renminbi currency.
But it made clear the statement was over a “possible offer,” and said it was “not an announcement of a firm intention to make an offer.”
It has begun talks with regulators in Britain and in Hong Kong, and would apply to also have its shares listed in London after the deal.
It is reported that “key” London managers would move over to roles in the Hong Kong firm’s managerial teams.
Li said: “Both businesses have great brands, financial strength and proven growth track records. 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.
The LSE had been looking to increase its activities in Asia. It is one of the oldest stock exchanges in the world, and can trace its history back more than 300 years.
The LSE board said it would consider the “unsolicited, preliminary and highly conditional proposal” and respond in due course. It added that it remained committed to the Refinitiv acquisition, which could prove a major stumbling block.
Richard Hunter, head of markets at Interactive Investor, said the move would “make strategic sense.”
But he added:“The scale of the deal is one which approximately results in the two exchanges being a merger of equals. The London Stock Exchange has historically fought off approaches from overseas, preferring instead to be the acquirer. It may also be that the likes of the New York Stock Exchange will be looking on with interest.”
He added that it could raise important competition, regulation and political issues, including UK-China relations and “how an East-West tie-up might be seen in the eyes of the US.”
Hunter also said the bid was “far from a done deal,” suggesting the retreat on initial share price gains could reflect investor scepticism about the deal going ahead.