The FTSE 100 is up almost 1% on the day as of writing, with limited volatility. With parliament prorogued, there was little opportunity for political news to move the market; however, a panel of Edinburgh judges did unanimously rule today that Prime Minister Boris Johnson’s suspension of parliament was unlawful, and specifically designed to disrupt legislative scrutiny of the Brexit process. The case will now go to the UK Supreme Court, and could muddy the already cloudy Brexit water. Stocks have been quiet, with one big exception, so let’s talk about that.
London Stock Exchange takeover bid
The biggest winner in the market today has been the London Stock Exchange (LSE: LSE) itself. Shares of the exchange jumped on the news that the Hong Kong Stock Exchange has advanced a surprise £32bn offer to buy out its UK-based counterpart. Shares traded as high as 7,922p (up 17%), before coming back down and settling around 7,230p (up 6.3%).
The news was somewhat surprising because the LSE had recently agreed a £22bn deal with Refinitiv, a provider of financial data. Refinitiv produces the Eikon terminal, a successor to the Reuters terminal (Thomson Reuters has a 45% stake in Refinitiv) that should be familiar to any financial professional. The move is supposed to set up the LSE as a serious competitor to Bloomberg, itself a provider of financial data, as well as news and opinion.Â
What is notable about the Hong Kong Stock Exchange’s offer, apart from the suddenness of it, is that it is contingent on the Refinitiv deal being voted down by shareholders. The LSE’s management has said that it will consider the offer, but that for the time being it remains committed to Refinitiv (to whom they would have to pay a £198m break fee if the deal falls through).Â
Although this is undoubtedly a very lucrative offer, there are a number of reasons to believe that the LSE will reject it. Firstly, the Refinitiv acquisition was supposed to be part of the LSE’s pivot toward the Asian markets. The London-based exchange is planning to become a leading player in the area, not a secondary one, subservient to bosses in Hong Kong.Â
Secondly, given all the recent political unrest in Hong Kong, LSE shareholders may be disinclined to swap their UK-domiciled equity for Hong Kong-listed shares. Thirdly, the deal could be blocked by regulators if they deem it a threat to national security. If you think that this is far-fetched, then consider the controversy over Chinese-based Huawei and its proposed 5G network. Clearly, the definition of what represents a national interest is up for interpretation. Regardless, this is an extremely interesting development, and we are certain to hear more about it no matter what the LSE’s shareholders ultimately decide.