Hong Kong Exchanges and Clearing (HKEX) has made a proposal to the Board of London Stock Exchange Group (LSEG) to combine the two companies. The Board of HKEX says a combination with LSEG represents ‘a highly compelling strategic opportunity to create a global market infrastructure leader’.
HKEX believes that the Proposed Transaction would offer the prospect of significant synergies. In particular, the migration of HKEX’s trading and clearing platforms to LSEG’s technology, the revenue uplift in key businesses from cross-selling and innovation opportunities and a reduction in HKEX’s capital expenditures in connection with existing systems and future investment plans all present strong synergy opportunities. LSEG shareholders would benefit from the realisation of the synergies as future shareholders of the combined group.
HKEX has played a key role in the City of London’s position as a global centre for metals trading since acquiring The London Metal Exchange in 2012. It is expected that key LSEG management would continue to operate LSEG businesses and to participate in HKEX Group management following the Proposed Transaction; and, working with the relevant authorities, it is expected that key LSEG businesses would continue to be regulated by their existing primary regulators. As regards the future governance structure of the combined entity, HKEX has begun conversations with certain regulators in the UK and Hong Kong and says its looks forward to discussing the transaction in detail with LSEG and all relevant regulatory bodies. HKEX says it will have regard to UK corporate governance best practices, appropriate for a leading global market infrastructure group. In addition, HKEX says it is fully committed to supporting and building the long-term roles of both London and Hong Kong as global financial centres.
Laura Cha, Chairman of HKEX, says: “We believe a combination of HKEX and LSEG represents a highly compelling strategic opportunity to create a global market infrastructure group, bringing together the largest and most significant financial centres in Asia and Europe. Following early engagement with LSEG, we look forward to working in detail with the LSEG Board to demonstrate that this transaction is in the best interests of all stakeholders, investors and both businesses.”
Charles Li, Chief Executive of HKEX, says: “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. 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.”
Under the terms of the Proposed Transaction submitted to the Board of LSEG, LSEG shareholders would receive per LSEG share: 2,045 pence in cash and 2.495 newly issued HKEX shares.
The Proposed Transaction implies a value for each LSEG share of c. 8,361 pence (based on the closing price of HK$245.20 per HKEX share on 10 September 2019 and a GBP:HKD exchange rate of GBP1=HKD9.6865). This would imply a value for the entire issued and to be issued ordinary share capital of LSEG (on the assumption that the listed share capital comprises 354,471,415 shares, post employee option exercise) of approximately GBP29.6 billion, implying an enterprise value of GBP31.6 billion (inclusive of net debt and other adjustments of approximately £2.0 billion as at 30 June 2019)1.
This represents: a premium of 22.9 per cent to the closing share price of 6,804 pence per LSEG share on 10 September 2019; a premium of 22.4 per cent to the volume weighted average closing price of 6,833 pence per LSEG share since 29 July 2019, the first trading date after the first announcement of the Refinitiv transaction, to 10 September 2019; a premium of 47.4 per cent to the closing price of 5,672 pence per LSEG share on 26 July 2019, the last trading date before the first announcement of the Refinitiv transaction; and a multiple of 30.2x times 2018 reported earnings before interest, tax, depreciation, amortisation and impairments.
HKEX intends to apply for a secondary listing of HKEX shares on the London Stock Exchange with effect from completion of the Proposed Transaction, reflecting HKEX’s commitment to the UK.
