Exchange negotiations

With the UK locked in Brexit uncertainty and Hong Kong stepping into its fourth month of public demonstrations, it seems a curious time for the Hong Kong Stock Exchange to stage a bid for the London Stock Exchange.

In a public statement, the board of the Hong Kong exchange said that the combination of these two trading venues would be “strategically compelling” and would lay the foundations for a world-leading market infrastructure group.

But for most financial commentators this overture came out of leftfield and did little to quicken the pulse of LSE shareholders – particularly in the shadow of the LSE’s £22bn offer for financial data specialist Refinitiv.

Admittedly, the bid generated more excitement that the approach from Swedish trading technology specialist OM almost 20 years ago, when little more than 5% of LSE shareholders were tempted by OM’s overtures. But LSE’s management demonstrated little appetite for engagement and HKEx chose not to improve its £32bn offer after being presented with little more than a cold shoulder in return for its affections.

The London exchange now has considerable experience in managing merger bids both requited and unrequited. In 2005, Clara Furse did her steely reputation no harm by seeing off the 530p a share bid from Deutsche Börse. Werner Seiffert, CEO of the German exchange group, managed this rejection by reassembling his jazz band and heading out of the road.

When merger talks reignited with the German exchange giant just over a decade later, there was excitement on both sides about the huge scale and technical synergies that such a deal could bring to Europe’s market for trade execution, market data and selected post-trade operations. This time, the EU competition regulator ruled that a Deutsche Börse-LSE merger, valued at a likely £21bn, would create a “de facto monopoly” and it blocked the deal.

A merger between LSE and HKEx would have created the world’s second-largest exchange group by market value, topped only by Chicago-based CME Group. But the potential offered by this east-west liaison seemed only to prompt mild amusement in the land of warm beer. With hindsight, some may wish they had been a little more hospitable, even though the final answer was always going to be no.