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Predator Becomes Prey

Finimize

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Finimize
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What’s going on?

The operator of the Hong Kong stock exchange, Hong Kong Exchanges & Clearing (HKEX), launched a surprise $37 billion takeover bid for London Stock Exchange Group (LSE) on Wednesday – jeopardizing the latter’s plan to buy data provider Refinitiv.

What does this mean?

Investors had welcomed LSE’s Refinitiv gambit, which would broaden its offering beyond bread-and-butter trade hosting. By adding Refinitiv’s data collection capabilities, LSE stood to become a serious rival to industry leader Bloomberg.

But now HKEX is looking to create a global trading titan linking the West to investment-hungry China, which this week scrapped limits on foreigners buying Chinese stocks and bonds. The takeover would be HKEX’s largest ever, dwarfing its then-record $1.7 billion purchase of the London Metal Exchange in 2012. Combining London’s stocks and metals trading venues could potentially trim operating costs and boost profit – if competition authorities approve the deal.

Why should I care?

For markets: It’s the politics, stupid. 
Running stock exchanges is a volume game, and various operators have been tussling to buy one another for years – only for proposed takeovers to fall foul of regulators. LSE had previously planned to merge with Germany’s Deutsche Börse, but that fell apart in 2017, partly because the European Union refused to base the continent’s leading exchange in post-Brexit Britain. Once-bitten investors seem skeptical HKEX will succeed with its bid: while LSE’s stock rose on Wednesday, it remained 16% below HKEX’s offer price (tweet this).

Zooming out: It’s the strategy, stupid. 
Companies seek to buy rivals for various reasons. The most common is to expand into new products or locations – a.k.a. a “horizontal merger”. But they might also want to purchase a company further up or down the supply chain – a “vertical merger”. HKEX acquiring LSE would be a classic example of the former, but LSE’s Refinitiv purchase would be a bit of both – allowing one company to own both the data terminals and the data itself. The coming weeks might reveal which investors prefer…

Originally Posted on September 11, 2019 – Predator Becomes Prey

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