Hong Kong Exchanges & Clearing Ltd. has proposed to the board of London Stock Exchange Group PLC to combine the two companies.
The proposed merger values the British bourse's entire issued and to-be-issued ordinary share capital at roughly £29.6 billion and implies an enterprise value of £31.6 billion, including net debt and other adjustments of around £2.0 billion as of June 30.
Under the deal, LSEG shareholders will receive £20.45 in cash and 2.495 newly issued HKEX shares for each LSEG share, implying a value of £83.61 for each LSEG share based on the Sept. 10 closing price of HK$245.20 per HKEX share and an exchange rate of £1 to HK$9.6865.
The valuation represents a 22.9% premium to the Sept. 10 closing share price of £68.04 per LSEG share and a 22.4% premium to the volume-weighted average closing price of £68.33 per LSEG share since July 29, the first trading date after the group's acquisition of Refinitiv was announced, to Sept. 10.
HKEX noted that it could make an offer for LSEG with less favorable terms if, among other instances, LSEG announces, declares, pays or makes a dividend or any other distribution to its shareholders aside from the interim dividends declared Aug. 1 and announce a whitewash transaction.
Recommendation
HKEX intends to seek a recommendation from the board of LSEG and HKEX's preference to carry out the transaction through a scheme of arrangement, but noted that it could alternatively execute the deal through a takeover offer.
The transaction, regardless of how it is carried out, will be subject to several conditions, including a resolution in respect of the Refinitiv acquisition having been voted on and not approved by LSEG's shareholders, or the Refinitiv deal being terminated, lapsing, being withdrawn or not proceeding for other reasons by Dec. 31 or at a later date HKEX may determine.
LSEG said its board will consider the proposal, but added that it is committed to and continues to make good progress on its proposed acquisition of Refinitiv Holdings Ltd.
The proposed merger will also be subject to approval from HKEX shareholders, as well as other terms and conditions usually attached to a scheme of arrangement or takeover offer, including conditions for regulatory and anti-trust approvals.
LSEG's management is expected to continue to operate the group's businesses and participate in the management of HKEX following the proposed merger, and key LSEG businesses are expected to remain regulated by their existing primary regulators.
HKEX said the merger could lead to significant synergies, particularly the migration of its trading and clearing platforms to LSEG's technology, revenue uplift in key businesses from cross-selling and innovation opportunities and a reduction in capital expenditures related to existing systems and future investment plans.
"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 centers in Asia and Europe," HKEX Chairman Laura Cha said.
HKEX added that it intends to apply for a secondary listing of its shares on the LSE, effective from the completion of the proposed merger, to reflect its commitment to the U.K.
Moelis & Co. UK LLP is exclusively acting as financial adviser to HKEX.
