The EconomistOctober 12th 2019 Finance & economics 75F
ew bourseshave been wooed as often
as the London Stock Exchange Group
(lse). It has been the target of a bid every
two and a half years on average since going
public in 2000, according to Berenberg, a
bank. All have failed, including the latest, a
£32bn ($39bn) offer from Hong Kong Ex-
changes and Clearing (hkex) in September
that would have created the world’s sec-
ond-largest exchange group by market val-
ue (behind America’s cmeGroup). On Octo-
ber 8th hkexcalled the whole thing off.
Charles Li, hkex’s boss, styled himself
as a Romeo to the lse’s Juliet, and held out
the prospect of a tie-up between East and
West. hkex is China’s main gateway to
Western capital markets. It offered a 23%
premium to the lse’s share price. But the
lse’s shareholders wanted more, and a
greater share of cash, at which point hkex’s
shareholders reportedly balked.
hkex’s management had been planning
a run at the lsefor about a year, but delayed
it because of Brexit uncertainty. Then their
hand was forced. In August the lse had said
it would buy Refinitiv, a data conglomer-
ate, for $27bn. Though the timing was terri-
ble, with protests roiling Hong Kong and an
escalating trade war between America and
China, hkexrealised it was now or never.
The lsewill now return to its original
plan of buying Refinitiv. That will probably
leave it too large for any other suitor. The
deal is due to be voted on later this year
and—regulators willing—to be completed
by the end of next year.
As hkex toured lse shareholders seek-
ing support, it made sure that they under-
stood the drawbacks of the Refinitiv deal.
The main one is Refinitiv’s slow growth
compared with the lse. Its data platform is
healthy, and combined the two firms’ trad-
ing platforms should create a formidable
business. But its desktop-terminal busi-
ness, where it competes with Bloomberg
and low-cost providers such as FactSet, is
weak. Commerzbank, a bank, reckons that
just over a third of Refinitiv’s assets are in
structural decline.
After several acquisitions, Refinitiv’s
information-technology systems are
poorly integrated. Its size relative to the lse
makes it a mouthful. It has nearly four
times as many staff, and its revenues and
profits are bigger. The purchase “could
really penalise the lse if execution goes
badly”, says a former lse executive. Since
Refinitiv’s purchase last year by Black-stone, a private-equity firm, growth has
picked up slightly—revenues increased by
3% in the first half of 2019. But the lsewill
need to spend heavily, and perhaps dispose
of part of the desktop business.
hkex’s ties with Hong Kong’s govern-
ment mean that its purchase of the lse
would have faced close political and regu-
latory scrutiny. For the lse-Refinitiv deal,
the big obstacle is competition law. The lse
will become a leading creator and distribu-
tor of financial data, the high price of
which is raising concerns globally. In 2017
the European Commission blocked a merg-
er between the lseand Germany’s Deut-
sche Börse on competition grounds. The
lsemay have to agree to substantial reme-dies. Still, British regulators will probably
give strong backing to a deal that will en-
sure it continues to be run from London.
The abortive tie-up inspires thoughts of
future matches. The world will probably
soon have a few giant global bourses and a
constellation of small national ones. hkex
could one day be acquired by a privatised
Shanghai exchange; two of America’s giant
exchange groups—iceand Nasdaq, say—
could combine. Some lse shareholders are
thought to be trying to provoke a bidding
war before the vote on the Refinitiv deal, in
the hope that ice might join in. Just three
years ago, after all, the lse was fending ice
off. But stepping in so soon after hkex’s
stumble would require strong nerves. 7Hong Kong’s pursuit of the London
Stock Exchange ends in tearsStock exchangesLoved and lost
A
statueofAdmiralYiSun-Shin,
famous for his victories over the
Japanese navy in the 16th century, casts a
fierce eye over Gwanghwamun Square in
the centre of Seoul. Recently he has also
been staring down at visitors in branches
of Nonghyup, a local bank. A picture of
the man in full battle gear encourages
customers to invest in the “Certain Vic-
tory Korea Fund”, which Nonghyup’s
asset-management arm set up in August
to bet on domestic firms it says will
benefit from government support in the
wake of a trade dispute with Japan.
Nonghyup is not the only South Kore-
an bank seeking to capitalise on a
nationalist moment. kbKookmin Bank,
a rival, is planning a similar fund. Several
have been offering free tickets to a film
about a famous battle with Japan to
anyone opening a liberation-themed
account. One has been giving out loans
with the interest rate capped at 8.15%,
alluding to August 15th, when the coun-
try celebrates the end of Japanese occu-
pation. Another said it hoped its “Libera-
tion Day” savings account would “inspire
patriotism” as well as increase custom-
ers’ assets.
The financial nationalism chimes
with the economic agenda of Moon
Jae-in, the president, who has promised
billions of dollars in support to local
manufacturers of components hit by
recent Japanese export restrictions. The
aim is to make South Korea “self-suffi-
cient” in such materials. Mr Moon put
some of his own money into the “Victory
Korea” fund to great fanfare shortly after
its launch. Nonghyup says the move
drew great interest. Other politicians
have since followed.TheNonghyupfundisstilltiny,at just
under 90bn won ($75m). It is classified as
“high risk”, because it is unclear how
successful the government will be in
encouraging self-sufficiency. Substitut-
ing for imported materials is likely to
drive up production costs across the
board. And the economic impact of the
trade dispute is likely to be negative.
But experience suggests that individ-
ual companies benefiting from targeted
subsidies could do well, reckons Shaun
Roache of s&p, a ratings agency. Sam-
sung, South Korea’s biggest chipmaker,
has already begun to use locally pro-
duced chemicals to guard against poten-
tial shortfalls caused by the trade re-
strictions. Even if the dispute with Japan
intensifies, the admiral’s followers could
be laughing all the way to the bank.Investingforvictory
Financial nationalism in South KoreaSEOUL
New investment schemes are intended to prop up domestic industriesYour country needs your money