Hong Kong’s stock exchange operator said on Wednesday that it was offering to purchase the parent company of the London Stock Exchange in a deal that, if completed, would value the British company at nearly $37 billion.
Hong Kong Exchanges and Clearing Limited said in a news release that a combination with the London Stock Exchange Group would result in a financial markets company “connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China.” It also said that combining trading platforms would reduce costs.
Shares of the London Stock Exchange Group jumped more than 14 percent in early trading on Wednesday.
In a statement, the London Stock Exchange said its board would consider the offer, which it called “an unsolicited, preliminary and highly conditional proposal.”
The London exchange also said it would stick with its deal to acquire Refinitiv, a provider of financial data, which it struck just weeks ago in a major bet on the value of financial information to investors. Hong Kong Exchanges said its offer was conditioned on the Refinitiv deal being terminated.
Both companies have global ambitions. Two years ago, European antitrust regulators blocked the London exchange from merging with the Deutsche Börse Group, which would have created a major market operator across Europe. It also tried to combine with the Toronto Stock Exchange nearly a decade ago.
For its part, the Hong Kong exchange operator struck a deal in 2012 to buy the London Metal Exchange, a major forum for trading nickel, aluminum and other industrial building blocks. But its big ties are with China, given Hong Kong’s longstanding status as a base for global companies doing business in the mainland. In recent years it has struck deals with Beijing to open conduits for money to flow between the Hong Kong exchange and exchanges in Shanghai and the Chinese city of Shenzhen, despite China’s tight limits on financial transfers across its borders.
Though the Hong Kong exchange’s revenue and profitability has continued to grow, it faces challenges on a number of fronts. The trade war between the United States and China has contributed to a slowdown in trading.
Longer term, the Hong Kong exchange and other companies in the Asian financial capital face difficult questions about their future.
Hong Kong is a semiautonomous part of China but operates under its own laws, which international businesses and investors find attractive compared with China, where the courts are undependable and controlled by Beijing. But antigovernment protests fueled in part by Beijing’s more assertive hand in Hong Kong’s affairs have raised questions about how long that arrangement can last. On Friday Fitch Ratings, the credit rating firm, downgraded its outlook on Hong Kong, saying the unrest had tested that arrangement.
Hong Kong Exchanges said its offer included both cash and stock valued than one-fifth higher than the London Stock Exchange’s trading value as of Tuesday.
The offer follows a wave of mergers among big stock exchange operators over more than a decade, as they seek to build up more sophisticated trading platforms to compete with the rise of electronic exchanges.