Hong Kong Exchanges (HKEX) and Clearing on Wednesday made a surprise proposal to acquire the London Stock Exchange Group (LSEG) in a cash and stock deal worth £29.6 billion ($36.6 billion). The combination of the two exchanges would create an exchange giant valued at more than $70 billion, according to HKEX.
Under the deal, HKEX will offer 2,045 pence in cash and 2.495 newly issued HKEX shares for each LSEG share. The offer represents a 23% premium to the closing of LSEG on Tuesday, Sept. 10.
HKEX’s offer comes weeks after the LSE made a $27 billion deal to acquire data company Refinitiv to help it expand into Asia and other emerging markets. HKEX stated that its offer for the LSE will only happen if the bid for Refinitiv is voted down by shareholders or withdrawn.
The LSE said it’s still committed to its $27 billion acquisition of Refinitiv, but will consider HKEX’s offer and provide more details at the appropriate time.
“LSEG remains committed to and continues to make good progress on its proposed acquisition of Refinitiv. A circular is expected to be posted to LSEG shareholders in November to seek their approval of the transaction,” the U.K. bourse said.
LSEG shares rallied 16% in morning trade but later gave away some of those gains. HKEX will retain key management of LSEG if the deal goes through. LSEG would control about 41% of the combined company.
“Bringing HKEX and LSEG together will redefine global capital markets for decades to come. 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.” HKEX Chief Executive Charles Li said in a statement.
“A combined group will be strongly placed to benefit from the dynamic and evolving macroeconomic landscape, whilst enhancing the long-term resilience and relevance of London and Hong Kong as global financial centres,” Li added.
However, the deal is likely to face significant political hurdles. U.K. regulators are likely to scrutinize the corporate governance of the Hong Kong stock exchange. Hong Kong’s Chinese-backed government nominates at least half of HKEX’s board, including its chairman.
“A takeover from Hong Kong, a special administrative region of China, could be seen as a takeover from China. It won’t be easy to clear all the regulatory hurdles — the deal is super politically sensitive,” Ronald Wan, chief executive at Partners Capital International Ltd. in Hong Kong to Bloomberg.