Some shareholders of Hong Kong Exchanges and Clearing (HKEX) are opposed to the local bourse further raising its bid for London Stock Exchange, saying a higher bid would mean additional risks for them.
Earlier on Friday, three shareholders of the London bourse said they could be drawn into further discussions if the HKEX raises its offer price by 20 per cent and increases the cash component.
"I will definitely oppose the HKEX from raising its offer for the LSE as it will become too expensive," said Christopher Cheung Wah-fung, a lawmaker for financial services sector, and an HKEX shareholder.
Cheung and about 500 local brokerages received shares of HKEX when it was listed in 2000.
Christopher Cheung Wah-fung, lawmaker for financial services, says that as an HKEX shareholder he opposes a higher bid for LSE. Photo: Nora Tam alt=Christopher Cheung Wah-fung, lawmaker for financial services, says that as an HKEX shareholder he opposes a higher bid for LSE. Photo: Nora Tam
The HKEX will have to convince these shareholders about the merits of a higher takeover offer.
"The deal is full of uncertainties as we do not know if the regulators in the UK, US and Europe will approve, and we do not know if the combination of the two exchanges will work out smoothly," said Cheung, who is also the founder and chief executive of Christfund Securities.
"As such, the current proposal means the HKEX shareholders have to face risks. I will certainly oppose raising the bidder higher as it would add to the risks."
The HKEX on September 11 surprised the market by proposing to pay £83.61 per LSE share in cash and stock for the London bourse operator, valuing it at £29.6 billion (US$36.6 billion). It is the most expensive exchange takeover offer and could create a giant exchange that would span Asia, Europe and America.
The LSE immediately rejected the unsolicited approach, saying it faced regulatory hurdles and did not make strategic sense.
But the HKEX has not given up and has hired HSBC and UBS to lobby the shareholders of LSE directly. HKEX needs to make a formal offer by 5pm next Wednesday. Some LSE shareholders on Friday urged the Hong Kong bourse operator to raise the offer by 20 per cent, according to a Reuters report.
Guy de Blonay, manager of the Jupiter Financial Opportunities Fund and a major LSE shareholder, said the HKEX would have to increase the per share price to between £90-100, up from the initial approach of around £83.61 for shareholders to take it seriously.
De Blonay told the Post by email that he wanted to see a revised offer from HKEX.
"Like many shareholders, I do not feel the current offer on the table from the HKEX for the LSE fully reflects the value and future potential earnings the combined entity would likely achieve ... That said, were we to see a revised headline price and an improvement in the cash component from HKEX, that would likely catch the attention of LSE shareholders," de Blonay said.
Charles Li, chief executive of HKEX, is leading the efforts to acquire LSE. Photo: Jonathan Wong alt=Charles Li, chief executive of HKEX, is leading the efforts to acquire LSE. Photo: Jonathan Wong
"[HKEX chief executive] Charles Li knows this is a one-off opportunity, and I would expect him to carry on fighting," de Blonay was quoted as saying in the Reuters report.
Wilfred Wong, another veteran local broker, was also opposed to the HKEX increasing the price further.
Tom Chan Pak-lam, chairman of the Institute of Securities Dealers and chief executive of Success Finance Group, said it was natural to see negotiations in any deal.
"Our brokerage house still owns shares of HKEX. We support the HKEX to use M&A to diversify and expand the business," Chan said.
An HKEX spokesman said he had no comment on whether the bourse operator planned to raise its bid.
A government spokesman declined to comment on its voting decision as a shareholder. The Hong Kong government is the largest single shareholder of the HKEX as it owns a 6 per cent stake through the Exchange Fund.
"The government is glad to see HKEX's endeavour to enhance its core strength and seek international expansion in accordance with its strategic plan. We do not comment on market speculation," a government spokesman replied to an email query.
The HKEX-LSE takeover will also need the approval of LSE and HKEX shareholders and regulators in the UK, US, France, Italy and Europe.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.