Time for a quick recap:
- The London Stock Exchange has rejected a takeover approach from Hong Kong Exchanges and Clearing. The idea has been dismissed as flawed, risky and financially unattractive.
- HKEX isn’t walking away, though. It plans to continue talking to LSE investors, and argues that its offer makes sense.
- The pound has hit its highest level in seven weeks, on hopes of a Brexit breakthrough. Speculation is building that a disorderly exit can be avoided, perhaps through a new Northern Ireland-only backstop?
- Credit Suisse has raised its position on UK assets, advising investors to buy London-listed stocks. It believes Brexit fears are easing.
- The ECB has faced criticism for the new stimulus programme launched yesterday, including from its own Austrian representative! Germany is also unimpressed, with one tabloid comparing Mario Draghi to Dracula.
- US consumer confidence has risen, despite worries over America’s economy. Many citizens are expecting lower interest rates soon…
- The US-China trade war continues to cool, with Beijing dropping new tariffs on pork and soybeans. It may bode well for next month’s negotiations….
- Ovo Energy is in line to become the UK’s second largest energy provider. It’s agreed to buy SSE’s household supply arm in a £500m deal.
- Pub chain JD Wetherspoon has suffered a 4.5% drop in profits due to rising costs, despite a healthy 7.4% jump in sales. Chairman Tim Martin has hit out at “Oxbridge” MPs for thwarting Brexit, and told us the government’s Operation Yellowhammer analysis was “bollocks”….
Newsflash: The Hong Kong Exchanges and Clearing has responded to the LSE’s rebuttal – and is refusing to go away quietly.
HKEX says it is disappointed that its London rival won’t “properly engage”.
It also defends its proposal, saying it is in the “best interests of shareholders, customers and global markets”.
The Board of HKEX continues to believe that the proposed combination with LSEG represents a highly compelling strategic opportunity to create a global market infrastructure leader.
Intriguingly, HKEX says it has held “constructive” initial discussions with regulators and policymakers (it doesn’t say where, but presumably they include London?).
And despite the LSE’s refusal to engage further, HKEX says it plans to continue engaging with shareholders….
This is interesting…..
Looks like Donald Trump’s message has got through to Americans – we’ll find out at next week’s Fed meeting whether Jay Powell is among them…
Despite recession fears, and the US China trade war, American consumer confidence has gone up!
The Michigan Consumer Sentiment index, just released, has risen to 92.0 for September, beating August’s 89.8. That’s also better than the 90.9 which Wall Street expected.
Still down on July’s punchy 98.4, but it may calm worries that the US economy is weakening. Of course, if consumers are less gloomy, there’s less need to cut interest rates as Donald Trump is demanding on an almost daily basis.
Here’s some reaction:
The US stock market has made a muted start to the final trading day of the week.
The Dow Jones industrial average is up 62 points, or 0.23%, in early trading at 27,245. Mining stocks, financial companies and industrial firms are among the risers.
That reflects optimism that the US-China trade war is thawing, now that Beijing has dropped new tariffs on American soybeans and pork imports.
Here’s our news story on the LSE-HKEX (non) merger:
Zimbabwe’s eye-watering interest rate hike, from 50% to 70%, is presumably an attempt to calm its inflation rate, which is acceleratingly alarmingly.
According to official data, Zimbabwe’s inflation rate almost doubled in July, to 175% year-on-year. Unofficial estimates suggest it is much higher, as shortages of food and fuel leave citizens facing sharply higher prices every day.
Now this is a rate hike:
Here’s Roger Barron, M&A Partner at law firm Paul Hastings, on the London Stock Exchange’s move:
“It’s unsurprising that they have rejected this approach as the fact it was unsolicited means that the bidder must have known it wouldn’t have been popular – if it had they would have tried to agree a recommended bid and maintain confidentiality.
It’s perhaps also surprising that they didn’t make this announcement sooner.”
The LSE’s firm rejection of HKEX’s takeover approach isn’t a surprise, says Neil Wilson of Markets.com.
Unattractive, offering a puny dowry and coming with volatile and unpredictable parents, HKEX never looked like the ideal bride. No great surprise to see the LSEG board has politely but firmly rejected the HKEX bid.
The letter to HKEX is not full of praise. In fact the letter from chairman Don Robert scolds HKEX for making public the highly speculative bid only days after telling LSEG.
So now that the LSE has dismissed HKEX’s charms, will someone else try their luck?
Wilson suggests a US suitor could be hovering in the wings:
The question now is whether the Americans come in with a counter offer. Shares are holding around the £73 level, suggesting there could be some interest. A knockout premium would be the price, but as we saw with Sky/Comcast, it’s not that far-fetched if the prize is deemed of enough strategic importance.
The LSE has also sent a blisteringly critical letter to the HKEX, explaining why its approach has been soundly rejected.
And they’ve released it to the City.
The LSE’s chair, Don Robert, begins by chastising HKEX’s chair, Laura Cha, and CEO Li Xiaojia, for going public with their proposed merger, saying:
We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it.
Robert then argues that:
1) There is no strategic merit for the LSE group in combining with the HKEX.
The high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSEG strategically.
For that reason, the LSE thinks it’s ongoing deal to buy Refinitiv makes more sense.
2) The deal could fall foul of regulators, and certainly wouldn’t be approved quickly.
Your proposal would be subject to full scrutiny from a number of financial regulators, as well as governmental entities under, for example, the UK Enterprise Act, the CFIUS process in the US, and the ‘golden powers’ regime in Italy. There is no doubt that your unusual Board structure and your relationship with the Hong Kong government will complicate matters.
3) The offer, a mix of cash and HKEX shares, is risky – due to the protests in Hong Kong.
We see the value of your share consideration as inherently uncertain. The ongoing situation in Hong Kong adds to this uncertainty.
4) The offer, worth £31.6bn, “value falls substantially short of an appropriate valuation” of LSEG (currently worth £25bn).
This all means a big thumbs-down from the LSE:
Taking all of these factors into account, the Board unanimously rejects your proposal. Given the fundamental flaws in your proposal, we see no merit in further engagement.
Newsflash: The London Stock Exchange has just roundly rejected the takeover proposal from its Hong Kong rival.
In a terse statement to the stock market, the LSE says it has considered the £32bn proposal made on Wednesday, and concluded it is fundamentally flawed.
Not only that, the LSE sees “no merit” in holding talks with Hong Kong Exchanges and Clearing!
Further to the announcement on 11 September 2019, the Board of London Stock Exchange Group plc (“LSEG”), together with its financial and legal advisers, has now considered the unsolicited, preliminary and highly conditional proposal from Hong Kong Exchanges and Clearing Limited (“HKEX”) to acquire the entire share capital of LSEG (the “Conditional Proposal”).
The Board has fundamental concerns about the key aspects of the Conditional Proposal: strategy, deliverability, form of consideration and value. Accordingly, the Board unanimously rejects the Conditional Proposal and, given its fundamental flaws, sees no merit in further engagement.
LSE adds that it remains committed to its takeover of financial data service Refinitiv — a deal which is meant to turn the exchange into a challenger to Bloomberg.
HKEX had said that its offer was conditional on the Refinitiv deal being abandoned.
More to follow…
Nick Marro, Global Trade Lead at The Economist Intelligence Unit, says China’s decision is a clear sign of goodwill.
He believes that dropping the new tariffs on pork and soybeans could help deliver progress at the US-China talks next month. But a full trade deal still looks a long way away.
Here’s Marro’s take:
- Re-opening the Chinese market for US farmers is a big priority for the US trade team, and so China eliminating the tariffs on US soy and pork products is a pretty genuine sign of goodwill. It’ll also be helpful in building more positive momentum before the trade talks planned in October.
- Allowing for more imports could also help China deal with its rising food price woes, particularly as the African swine fever outbreak worsens. That said we still expect pork imports to only modestly offset the inflationary impact of that disease, as most pork consumption in China is driven by domestic supply.
- We’re still not optimistic about the prospects of a trade deal, with even an interim agreement only papering over the deeper structural issues at the heart of the relationship. Regardless of what happens with these tariffs, we still expect other issues–such as in technology and finance–to weigh on US-China relations in the longer term.
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