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A scathing London Stock Exchange sends $54b Hong Kong suitor packing

“Three-quarters of your proposed consideration is in HKEX shares, representing a fundamentally different and much less attractive investment proposition to our shareholders,” Robert said in his rebuttal.

“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,” the rebuttal said.

There’s HKEX’s unusual relationship with its government.

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“We are not a Chinese company,” Charles Li stressed on Wednesday. He even claimed “we are not even a Hong Kong company,” referring to the exchange’s 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 per cent 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 US 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 UK Enterprise Act, the CFIUS [national security] process in the US, 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.

The British exchange operator worked long and hard to get it: the Shanghai exchange interlisting project dates to 2015, when former finance minister George Osborne travelled to China to court officials. After a long wait while LSE sought Chinese approvals, Huatai Securities became the first Stock Connect listing in London in June.

LSE doesn’t see the point of scrapping its Refinitiv deal.

LSE wants to buy the former Thomson Reuters financial and risk business to transform itself into a global force in data and trading platforms. Stock investors like the $US27 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 finds HKEX’s business so 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,” it said in its rebuttal.

Robert ended the letter with a final dig.

“Given the fundamental flaws in your proposal, we see no merit in further engagement.”

Bloomberg

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