How HKEx’s LSE setback is a case study in bad M&A

The Hong Kong exchange’s formula of failure – emphasising on the financial merits while neglecting London’s concerns over corporate governance.

If there was a list of examples on how a takeover approach could go wrong without proper strategic planning and a well-planned public relations campaign, Hong Kong stock exchange’s failed bid for the London Stock Exchange Group would undoubtedly be on the list.

HKEx’s ambitious £32 billion ($39 billion) unsolicited bid for its London rival, which runs the London and Milan exchanges, was formally rejected less than 48 hours after the offer was proposed late Friday.

While the refusal itself wasn't a huge surprise, the LSE's blatant and somewhat discourteous response has become a major talking point within financial circles.

LSE said a tie-up with HKEx would be a significant backward step for the group strategically, adding that its board of directors had unanimously rejected the conditional proposal and saw "no merit in further engagement given its fundamental flaws.”

The London bourse operator not only questioned the synergies that might result from a potential tie-up with Hong Kong but also played up its existing partnership with Hong Kong's main Chinese rival via the London-Shanghai Stock Connect.

“We do not believe HKEx provides us with the best long-term positioning in Asia or the best listing/trading platform for China,” LSE said in the statement. “We value our mutually beneficial partnership with the Shanghai Stock Exchange which is our preferred and direct channel to access the many opportunities with China.”

LSE’s provocative and rude response speaks much about how wrongly HKEx approached its target.


The Hong Kong exchange has perhaps picked the worst possible time to propose an acquisition, given the political turmoil that has engulfed Hong Kong over the past three months as pro-democracy protests have intensified and Beijing has encroached on the city's independence.

HKEx appears to have neglected the impact of these political uncertainties, despite clear signs that British politicians and lawmakers are concerned about Hong Kong gradually losing its autonomy. UK Prime Minister Boris Johnson has said he backs Hong Kong protesters “every inch of the way” in their opposition to a bill allowing extradition to China.

In a letter to HKEx published alongside the refusal statement, LSE also made reference to its links with the Beijing-appointed Hong Kong executive. Despite being a publicly listed company, HKEx was established as a special entity effectively control by the city’s government.

“There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters,” LSE said. 

Hong Kong law prohibits any entity from owning more than 5% of HKEx. That structure allows the Hong Kong government to control the exchange despite having a mere 6% stake.

Seven of HKEx’s 13 board members, including the chairman and chief executive, are appointed by Hong Kong chief executive Carrie Lam, who in turn is appointed by the Chinese government.

It goes without saying that such a structure would come under intense regulatory scrutiny from the British authorities.

HKEx has stressed that the tie-up will benefit London financially because the combined entity would be ideally positioned to benefit from the evolving global macroeconomic landscape while connecting financial markets in Asia with those in the West.

But maybe the Hong Kong exchange would have been better advised to focus on explaining how it would preserve its autonomy from the Chinese government and protect itself from political interference.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media