Hong Kong offers £32bn for London Stock Exchange

It's just got exciting at the LSE with this bolt from the blue. Our head of markets shares his thoughts.

Investors were taken by surprise Wednesday when Hong Kong Exchanges and Clearing Limited (HKEX) launched a bid to buy the London Stock Exchange Group (LSE:LSE) for almost £32 billion. 

In an unexpected turn of events, LSE shareholders have been offered 2,045p in cash plus 2.495 new HKEX shares. That values LSE shares at about 8,361p each, or £29.6 billion. Including net debt and other adjustments of around £2 billion gets you to £31.6 billion.

"Bringing HKEX and LSEG together will redefine global capital markets for decades to come," said Charles Li, chief executive of HKEX, "enhancing the long-term resilience and relevance of London and Hong Kong as global financial centres."

But a current share price of 7,100p tells you all you need to know about what the market thinks of the likelihood of success.

The proposed offer would certainly be totemic in terms of East-West relations and the complementary strengths of the two exchanges would make strategic sense.

This is an initial shot, however. As such, and not surprisingly, it will throw out a number of questions rather than answers at this stage.

Source: TradingView Past performance is not a guide to future performance

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.

In addition, the very nature of the Hong Kong approach will be subject to any number of considerations, such as competitive and regulatory issues. This is quite apart from the political questions it raises, both in terms of the history between the two "countries", as well as how an East-West tie-up might be seen in the eyes of the United States, given the current economic situation.

Part of the proposal requires that the Stock Exchange back away from its recent $27 billion deal to acquire Refinitiv, which appears to be an early stumbling block. The initial response from the Stock Exchange, which describes the approach as "unsolicited, preliminary and highly conditional", is one which it will consider.

The proposal is a fascinating prospect, but far from a done deal. The fact that the LSE share price has already retreated from the initial 10% spike on release of the news may reflect some initial scepticism around the likelihood of the deal going through.