Hong Kong Exchanges and Clearing (HKEX) will have to put its plans for “creating a global capital markets operator” on ice after abandoning its £32bn offer for the London Stock Exchange (LSE), says the Financial Times. It continues to insist that there was a “compelling rationale” for the merger, but it has recognised that its “charm offensive” has failed to persuade either the LSE’s board or its investors. This was partly down to the “insufficient” amount of money that it was offering and the fact that HKEX’s offer depended on the LSE giving up its plans to buy trading and data group Refinitiv for $27bn.
It’s no wonder the deal failed, says Alex Brummer in the Daily Mail. A merger with Hong Kong would have offered the LSE “a huge window on Asia”. But the role of Hong Kong’s government in appointing the board of HKEX raised a “potentially insurmountable” governance barrier: given the ongoing repression in Hong Kong, it is “hard to see” authorities in London, Brussels and New York allowing the London clearing house, “home to trillions of pounds of derivatives contracts”, to fall into “unsafe hands”.
HKEX’s bid for the LSE may have made little sense, but it provided an opportunity to ask “hard questions” about the Refinitiv deal, says Jim Armitage in the Evening Standard. These include why the LSE has chosen to buy the business now when it, and every other exchange, “decided against buying it a couple of years ago”, and why it wants a company “led by trading terminals inferior to Bloomberg’s”. At the very least, some “cynical” questioning from “outside the fee-hungry City bubble would have been nice”.
A blessing in disguise?
The collapse of the LSE deal may have turned out to be a “blessing in disguise” for Hong Kong, says Clara Ferreira Marques on Breakingviews. This is because the financials “were always a stretch” for HKEX, even without adding cash this week to “revive talks”. But adding cash to sweeten the bid and revive talks, as some investors were demanding, would have meant a “far heftier” debt burden of four or five times post-deal Ebitda. That would have rattled HKEX shareholders used to “generous payouts”. Instead of chasing London, Hong Kong would be well advised to “seek out closer prey among regional rivals”.
HKEX needs to pay attention to what the mainland exchanges are doing, says The Wall Street Journal. This is because they are starting to compete with Hong Kong by moving “to build their own links with the West”. As a result, HKEX could find that it no longer has a monopoly on access to the Chinese market, allowing the LSE and other Western exchanges to bypass it entirely. Note that this year saw the first stock offering made via the Shanghai-London Stock Connect, an arrangement that ultimately aims to make Chinese shares available to UK investors and vice versa.