The Hong Kong Stock Exchange on June 1, 2017. A nearly $37 billion offer from the Hong Kong exchange to buy its London counterpart faces tough odds. If sealed, it could transform turbulent markets in Asia and Europe. Image: Lam Yik Fei/The New York Times
LONDON — Stock exchanges are potent national symbols of capitalistic clout, and a surprise offer on Wednesday by Hong Kong’s exchange to acquire its London competitor is likely to set off a transcontinental tug of war.
If it came to fruition, the Hong Kong Stock Exchange’s unsolicited $36.6 billion bid for the London Stock Exchange would create a market juggernaut, pairing the preeminent exchanges in Europe and Asia and creating an emboldened rival to challenge the leading U.S. exchanges.
Hong Kong officials said on Wednesday that fusing the two exchanges would allow companies and investors to profit from a common platform for trading stocks and bonds that would be open 18 hours a day.
But the proposed deal comes at a time of wrenching economic, political and social turmoil in Britain and Hong Kong that is jeopardizing their standings as regional financial hubs.
In Hong Kong, China’s efforts to assert control over the semiautonomous territory have provoked weeks of angry protests. And in Britain, the government is in turmoil over plans to exit the European Union in a way that could deflate the economy.
The Hong Kong offer would require Britain to cede a corporate crown jewel — one whose roots trace back to 1571 — at a time when London’s centuries-long status as a leading financial capital is already in doubt because of Brexit.
Britain has been more open to investment from China and Hong Kong than other Western countries have. Li Ka-shing, the Hong Kong tycoon, has invested in British infrastructure for years, and London has been slow to bend to Washington’s pressure not to use equipment from Huawei, the Chinese maker of telecom gear. But the Hong Kong protests have brought questions of Chinese influence to the fore.
The Chinese government is the largest shareholder of the Hong Kong exchange, with the right to name six of its 13 board members, and Beijing’s responses to the anti-government demonstrations in Hong Kong are likely to lead British officials to closely scrutinize the deal for any signs of Chinese government influence. Britain’s business minister, Andrea Leadsom, said in a Bloomberg Television interview Wednesday that regulators would “look very carefully at anything that had security implications for the U.K.”
Previous foreign takeovers of British companies have been derailed or delayed on similar grounds, such as a proposed takeover last year of Northern Aerospace by a Chinese rival. The British government announced plans last year to significantly toughen its scrutiny of foreign takeovers, with a particular eye on those coming from China.
Trying to bolster its standing as an independent company, the London exchange last month agreed to buy the data provider Refinitiv for $27 billion. That pending deal makes the Hong Kong bid even more of a long shot because it would make the London Stock Exchange bigger than its Asian rival.
The Hong Kong company’s takeover interest caught the management of the London Stock Exchange by surprise.
Executives at the two exchanges met on Monday in what British executives figured would be a casual discussion about the state of their industry, according to people with knowledge of the matter.
Instead, the Hong Kong officials declared that they wanted to buy the London exchange for nearly $37 billion.
Less than 48 hours later, the Hong Kong company made its offer public, hoping to cause a swell of support for the deal from the London Stock Exchange’s shareholders.
Under the terms of the offer, the Hong Kong company would pay cash and stock worth about 8,361 pence per share as of Tuesday’s stock prices, a 23% premium to where the London exchange’s company had been trading.
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