Dear Ms Cha and Mr Li,
We are responding to your highly conditional proposal of 9 September 2019.
We were very surprised and disappointed that you decided to publish your unsolicited proposal within two days of our receiving it.
Having now considered your letter and the associated documents carefully with our financial and legal advisors, the Board has fundamental concerns about your proposal.
The Acquisition of Refinitiv
LSEG agreed and announced the acquisition of Refinitiv on 1 August 2019. This was the culmination of many months of strategy development, deep consideration and discussion. It is a transformational transaction, strategically and financially. The combined global business will be headquartered and domiciled in the UK with a premium listing in London.
The financial and strategic logic of the Refinitiv transaction has been exceptionally well received. Since the Refinitiv announcement, the LSEG share price is up c.29%, a value increase of c.£5.8bn. There is positive market sentiment about the potential for further value creation for the enlarged group and the Board is confident that significantly greater value can be achieved.
Our Evaluation of your Highly Conditional Proposal
1. HKEX Proposal Does Not Meet Our Strategic Objectives
We do not see strategic merit for LSEG in your proposed transaction. Our planned acquisition of Refinitiv meets LSEG's strategic objectives across its businesses which the Board believes to be critical for a leading Financial Markets Infrastructure provider of the future. In stark contrast, the high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSEG strategically.
We recognise the scale of the opportunity in China and value greatly our relationships there. However, we do not believe HKEX provides us with the best long-term positioning in Asia or the best listing / trading platform for China. 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.
2. Serious Deliverability Risk
LSEG provides critical financial markets infrastructure. Your proposal would be subject to full scrutiny from a number of financial regulators, as well as governmental entities under, for example, the UK Enterprise Act, the CFIUS process in the US, and the 'golden powers' regime in Italy. There is no doubt that your unusual Board structure and your relationship with the Hong Kong government will complicate matters. Accordingly, your assertion that implementation of a transaction would be "swift and certain" is simply not credible. On the contrary, we judge that the approval processes would be exhaustive and that support from relevant parties, vital for the transaction, is highly uncertain. This would pose serious risk for our shareholders.
In this context, the consequence of our pursuing your proposal would be the termination of the acquisition of Refinitiv when there is such uncertainty, given the regulatory, shareholder and other approvals you require, that a sale to you would be concluded. In our judgement, this is not a course of action that could be recommended to our shareholders, particularly given the high confidence we have in the significant value creation and deliverability of the Refinitiv transaction.
3. HKEX Share Consideration is Unattractive
We note that three-quarters of your proposed consideration is in HKEX shares, representing a fundamentally different and much less attractive investment proposition to our shareholders. We see the value of your share consideration as inherently uncertain. The ongoing situation in Hong Kong adds to this uncertainty. Furthermore, we question the sustainability of HKEX's position as a strategic gateway in the longer term. The Hong Kong concentration and core characteristics of your business, together with your Hong Kong domicile and listing, present an additional set of difficulties.
4. Value Falls Substantially Short
Irrespective of the considerations above, and even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv.
Taking all of these factors into account, the Board unanimously rejects your proposal. Given the fundamental flaws in your proposal, we see no merit in further engagement.
Chairman, London Stock Exchange Group plc