- Offer to combine companies to create “global market infrastructure leader”
- Announcement follows LSE agreement to buy data giant Refinitiv
- FTSE 100 advances at open as investors as Brexit turbulence calms
- Apple launches price war on Netflix as it unveils cheaper iPhone 11
- Jeremy Warner: Is Christine Lagarde capable of the change necessary to save the eurozone?
LSE: A biddable company…
Some City analysts reckon LSE has been subject to a takeover or merger approach, on average, every two and a half years since floating in 2000 from “at least” five separate companies, including the ICE. Given the current strength of businesses such as clearing house LCH and FTSE Russell, analysts believe there’s a “one-in-three” chance a separate bid will emerge for LSE as a standalone company, before it becomes too large to buy.
Their full piece (which is a must-read to understand the wider context of this deal) can be read here:
LSE shares have shed some of their initial gains, and are now up just over 6pc. They hit an all-time high earlier, but are now a little lower than where they stood last week, after some selling-off on Tuesday.
Ben Wright: Takeover offer is ‘fighting the weight of history’
Telegraph Business Editor Ben Wright has offered his snap take on HKEX’s audacious grab for the LSE:
Few companies have as many stakeholders as a stock exchange. All will want a say. Few will agree.
HKEX is fighting the weight of history. I don’t have enough fingers to count the number of failed takeovers of, and mergers involving, the LSE down the years.
The LSE has only just agreed a $27bn merger with data group Refinitiv, making it one of the largest financial and trading data companies in the world. It’s going to want time to swallow and digest that deal before moving on to another monster transaction.
Few companies can really be described as “strategic”. But there’s a good argument that stock exchanges are. That means that politicians are going to want to get involved.
Is the British government prepared to have a strategic financial asset effectively owned by the Chinese?
Even if was prepared to have a strategic financial asset effectively owned by the Chinese, is it comfortably with a deal happening now, as protests in Hong Kong reach fever pitch?
The UK is currently still a member of the European Union. The LSE is therefore also a strategic European financial assets and Brussels is likely to get involved.
It is not hard to imagine Donald Trump demanding that the UK blocks the takeover as a precondition to any future US-UK free trade agreement.
LSE caught unaware by HKEX announcement
Snapping back to London, Harriett Russell has the latest on HKEX’s shock-and-awe offer for the London Stock Exchange Group, who were caught off-guard by announcement. She reports:
It’s a decline to comment from the LSE with sources telling me the exchange was unaware of Hong Kong’s planned announcement.
Also breaking: Scottish court rules prorogation of Parliament is unlawful
It’s all kicking off now. Over in Scotland, an appeals court has ruled Boris Johnson’s suspension of parliament is unlawful. Implementation will not occur until the UK Supreme Court makes a ruling on the issue next week. The Government will appeal the ruling.
LSE would have to drop Refinitiv offer for deal to pass
A crucial part of HKEX’s announcement is its demand that LSE withdraws plans to merge with data giant Refinitiv.
The planned LSE/Refinitiv merger would place the company in competition with Bloomberg in the lucrative financial data space.
- Read more: David vs Goliath: London Stock Exchange’s $27bn swoop on Refinitiv pits it against Bloomberg
The Proposed Transaction, whether implemented by way of a scheme of arrangement or takeover offer, would be subject to, amongst other things:
- a resolution in respect of the approval of the Refinitiv transaction having been voted on and not approved by the LSEG shareholders; or the Refinitiv transaction being terminated, lapsing, being withdrawn or not proceeding for any other reason; in each case by 31 December 2019 or such later date as HKEX may determine;
My colleague Harriet Russell reports:
Sources in Hong Kong said the deal had been in the works for a number of months but was “catalysed” by LSE’s Refinitiv announcement last month.
The deal is only expected to proceed if LSE takes the Refinitiv deal off the table altogether.
In August, City analysts said they would not be surprised to see the LSE receive takeover offers of its own in the wake of the Refinitiv announcement as potential suitors looked to snap up the London-based exchange before it got “too big to buy”
Merger would ‘redefine global capital markets for decades to come’
Charles Li, HKEX’s chief executive said:
Bringing HKEX and LSEG together will redefine global capital markets for decades to come. Both businesses have great brands, financial strength and proven growth track records. Together, we will connect East and West, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities. A combined group will be strongly placed to benefit from the dynamic and evolving macroeconomic landscape, whilst enhancing the long-term resilience and relevance of London and Hong Kong as global financial centres.
All the noise we have on this is from the Hong Kong Exchanges and Clearing side. They say the proposal would:
- Create a world-leading market infrastructure group with a global footprint, diversified across asset class, ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China;
- Elevate the UK’s role in capturing the significant growth opportunities presented by Mainland China’s continuing internationalisation and the emergence of RMB as a global reserve currency, securing London’s position as the global centre for both Eurodollar and offshore RMB;
- Reinforce Hong Kong’s position as the key connection between Mainland China, Asia and the rest of the world, providing a trusted and clear path for the continued opening up of Mainland China’s capital markets and for the investment of Asia’s growing wealth;
- Enable the creation of unique and valuable data sets for global investors, through the combination of LSEG’s global data and analytics capabilities and distribution channels, and HKEX’s access to China, the world’s most digitalised growth economy;
- Enhance global capital formation by making it easier for companies to access equity capital across the world, through the IPO and secondary fundraising markets in London, Hong Kong, Milan, and Mainland China via the Connect programmes; and
- Offer innovation opportunities in equities, fixed income, currencies, commodities and derivatives products with domestic, regional and global relevance; allow for the application of best-in-class technologies in multiple markets and platforms; and help strengthen transparency, resiliency and risk capabilities in both London and Hong Kong.
A London Stock Exchange – Hong Kong Exchanges merger would be a bold move. One of course is at the heart of an ageing financial centre struggling with a larger and more powerful neighbor, in a moment of acute political crisis, and the other is Hong Kong.
— Mike Bird (@Birdyword) September 11, 2019
NEW: Hong Kong Exchanges and Clearing tables £30bn bid for London Stock Exchange Group
Just weeks after London Stock Exchange announced its acquisition of data business Refinitiv, Hong Kong Exchanges and Clearing Limited (HKEX), which operates the stock market and futures market in Hong Kong, has thrown its hat in the ring to snap up the LSE, in a deal which could be worth close to £30bn (Harriet Russell writes).
HKEX intends to apply for a secondary listing of its shares on the LSE, should the deal complete, which it said demonstrated its “commitment to the UK”.
In August, LSE agreed to buy financial information provider Refinitiv in a $27bn (£22bn) deal aimed, to establish itself as a credible rival to Bloomberg.
Business Secretary Andrea Leadsom happened to be on Bloomberg TV as the news broke. She said the UK welcomes foreign investment but would “look very carefully at anything that had security implications for the UK”.
LSEG and HKEX are two of the world’s premier market infrastructure businesses, which together would offer unique potential to enhance and capture global capital and data flows. The proposed combination would strengthen both businesses, better position them to innovate across markets and geographies, and offer market participants and investors unprecedented global market connectivity.
LSE shares have surged by nearly 9pc on the new:
Sports Direct prepares for annual general meeting. Not on the invite list: journalists
Today will mark another twist in the saga of Sports Direct — one that has recently included investors being left in the lurch by repeated delay to the retailer’s market update.
Journalists have been banned from the event, so it is likely we won’t hear what occurs at the gathering of shareholders until after 11am.
Just been told Sports Direct is banning all media from its AGM tomorrow.
Never a good look when a company shuts out journalists. What happened to its “very open” promise in 2016? Mind you “very prudent” and “very compliant” also in question… pic.twitter.com/1ebagZTIN0
— Ashley Armstrong (@AArmstrong_says) September 10, 2019
Boss Mike Ashley is facing calls to step down following the company’s update fiasco during the summer, which culminated in its revealing it had been hit by a £605m tax bill by Belgian authorities.
It’s also on the hunt ofr a new auditor, as it struggles to find a bean-counter willing to take on its increasingly-complicated accounts.
Section 490 which says where an auditor is not appointed the Secretary of State (at BEIS) may appoint one, and determine remuneration. Also the company must let the SoS know within a week that the power is exercisable. Otherwise both the company and its officers commit an offence
— PIRC (@PIRC_news) September 11, 2019
The company structure has grown ever-more byzantine in recent years, as Mr Ashley buys up more and more high street brands.
Here’s a reminder of how things went down during its delay saga in July:
Telegraph Chief City Commentator Ben Marlow has weighed in on the saga today, comparing Sports Direct with rival JD sports — which is having a rather better time. He writes:
While the burly billionaire continues his bizarre obsession with snapping up failing rivals and struggling brands, JD Sports has cornered the booming market for fashionable athletic clothing.
The fortunes of the two high street sports chains couldn’t be more different. In the last five years, shares in Ashley’s empire have slumped two-thirds amid fears that a company once feted by the City is beginning to unravel.
You can read his full thoughts here:
Oil steadies after Bolton ouster relieves pressure on producers
The sudden ouster of John Bolton — the latest national security advisor to lose a spot in the White House — had a fairly sharp initial impact on the price on oil yesterday.
The exit Mr Bolton, known for his hawkish foreign policy stance, relieved fears over an escalation in US hostilities towards oil producers Iran and Venezuela.
Mr Bolton, who was hired by Donald Trump after the President was impressed by his television performances. Reporting suggests he fell out with the commander-in-chief after Mr Trump was left frustrated by the US’s failed attempt to bring about regime change in Venezuela.
As for exactly how Mr Bolton was ousted, here’s what the two men say:
….I asked John for his resignation, which was given to me this morning. I thank John very much for his service. I will be naming a new National Security Advisor next week.
— Donald J. Trump (@realDonaldTrump) September 10, 2019
Sorrell’s S4 Capital aims to double in size by end of 2021, swings to loss as acquisitions continue
Sir Martin Sorrell’s S4 Capital said it remains on track to double in size by 2021 in half-year results today, even as a spending spree pushed it to a loss.
The marketing group made a £8.5m pre-tax loss for the six month to June, which registered as a profit if adjusted for one-off costs.
The company, with Sir Martin formed after leaving ad giant WPP under a cloud, has been on a spending spree as it seeks to expand further into programmatic advertising.
Its client list has expanded to include several major advertisers, including Coca-Cola, Nestle and Proctor & Gamble.
Sir Martin said (in comments directed at investors):
These results confirm the power and relevance of the faster, better, cheaper, digital-only unitary advertising model, with first party data fuelling content and programmatic. Now the task is to build significant scale organically, by broadening and deepening existing and new client relationships and adding resources through merger and acquisition. Your company is being increasingly involved in significant industry reviews.
Competition watchdog to assess Union plans to buy student digs rival
The Competition & Markets Authority has announced it is evaluating the anticipating takeover by Unite Group, which build and maintains student accommodation, of rival Liberty Living Group.
The watchdog said it “is considering whether it is or may be the case that this transaction, if carried into effect, will result in the creation of a relevant merger situation… and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition”.
Unite released a statement and trading update this morning to coincide with the announcement. It said it had experienced “a strong lettings performance” over the summer, putting revenues around 40pc than in 2018.
“As such, we remain confident in delivering rental growth of 3.0–3.5pc for 2019/20 and 2020/21, including improved utilisation,” the company said.
Richard Smith, Unite’s chief executive, said:
Demand for UK Higher Education remains robust, as reflected in the record share of 18-year olds choosing to attend University. Student demand also supports our strategic alignment to mid and higher tariff Universities. Despite increased political and economic uncertainty, we maintain our positive outlook for the business
Galliford Try announces profit drop amid Bovis takeover talk
Galliford Try was a FTSE 250 darling yesterday, with its shares soaring after peer Bovis Homes announced it was restarting a takeover bid for the housebuilder.
Today, Galliford posted full-year results, which show its profit slipped over the year to June. My colleague Laura Onita reports:
Profits fell to £104.7m from £143.7m for the year to the end of June, while revenues edged down from £2.9bn to £2.7bn.
The FTSE 250 construction firm had to foot another £26m bill to complete the Aberdeen Western Peripheral Route, which has now been finalised, as well as other one-off charges worth £24m. Stripping these out, pre-tax profit was in line with expectations at £155.5m, down from £188.7m last year.
Its housebuilding arm, which will merged with that of Bovis in a £1bn deal if all goes to plan, built 6,057 new homes, a slight fall on the year before.
- You can read her full report here: Aberdeen bypass costs take a chunk out of Galliford Try profits
The results have shaved just more than a percentage point off Galliford’s shares so far today.
What happened overnight
Bond yields climbed and stock markets held steady on Wednesday, as hopes of easing US-China tensions and diminished risk of a no-deal Brexit prompted traders to take profit before key central bank meetings, Reuters reports.
Oil prices also firmed, underpinned by a big drop in US crude stockpiles, after slipping the previous day.
MSCIs broadest index of Asia-Pacific shares outside Japan rose 0.4pc to hit a fresh 5-1/2-week high.
Investors around the world continued to rotate into value stocks, representing a major reversal after many months of outperformance by growth shares such as tech companies.
Japan’s Nikkei average climbed 0.9pc, with the Topix Value index jumping 1.9pc whereas the Topix Growth added 0.8pc.
The Shanghai Composite and the blue-chip CSI300 fell in afternoon trade, while Hong Kong’s Hang Seng advanced 1.6pc.
Agenda: Markets await Draghi
Good morning. European stocks closed higher yesterday after a late rally while the pound strengthened against both the dollar and the euro.
Today is likely to see stimulus fever crank up as investors look ahead to the European Central Bank’s meeting tomorrow. It’s a quieter day on the corporate and economic fronts for the UK.
5 things to start your day
1) Shops are shutting at a rate of up to 16 a day across the country, with closures hitting record levels as the crisis engulfing the high street escalates. The first half of this year saw 2,868 store closures, almost twice as many as openings, as retailers increasingly resort to controversial rescue deals to cut rents and shut unprofitable stores.
2) Has ECB boss Mario Draghi got anything left in his box of tricks? Running any central bank is hard enough, but spare a thought for European Central Bank president Mario Draghi. The Italian, who steps into the spotlight tomorrow for almost the final time, took the job on in the teeth of an existential Eurozone debt crisis in 2011.
3) A wildly swinging pound is trading like an emerging market currency as the next Brexit deadline looms, Bank of England Governor Mark Carney has warned. The extreme volatility in sterling is more in line with the performance of currencies in developing economies while the pound has now “decoupled” from its peers in other advanced countries “for obvious reasons”, Mr Carney said at an event in New York.
4) Brexit ‘train crash’ warning from Vauxhall boss Tavares at Frankfurt motor show: Mr Tavares said it was like “sending two trains to crash at full speed into each other just to demonstrate the strength of your muscles. [It] doesn’t seem to be the best approach.”
5) Honest Burger has shrugged off Britain’s casual dining crunch by not simply turning a profit, but growing its bottom line. Sales at the burger chain rose by more than a third to £31m, with pre-tax profit a fifth higher at £873,000 in the year to January, according to Companies House filings.
Coming up today
Interim results: AMS, Chemring, S4 Capital
Full-year: Galliford Try
Trading statement: Biffa
Economics: Mortgage applications, producer price index (US)