Hong Kong Exchanges Peers at London Stock Exchange-Deutsche Börse Merger Talks 

HKEx chief Charles Li says deal would put ‘pan-European exchange powerhouse on the horizon’

The operator of Hong Kong’s stock exchange said Wednesday it is keeping a close eye on advanced merger discussions between London Stock Exchange Group PLC and Deutsche Börse AG that could create Europe’s largest exchange.

Hong Kong Exchanges & Clearing Ltd. Chief Executive Charles Li told reporters the potential transaction puts the prospect of a “pan-European exchange powerhouse on the horizon,” but declined to comment on whether the Hong Kong exchange operator would consider lobbing a potential competing bid. HKEx already owns the London Metal Exchange in the U.K.

Mr. Li said HKEx isn’t currently looking at any “LME-type acquisitions,” referring to the exchange’s 2012 acquisition of the London Metal Exchange, when the Hong Kong exchange operator took control of one of the world’s biggest commodities-trading venues.

“Unlike many other companies, we actually have a lot of things that’ll continue to sustain our growth into the future,” Mr. Li said Wednesday. “Whenever opportunities arise that complement that growth, we’ll be looking at it, but we’re not actively looking for something just to add onto our portfolio.”

The comments came as HKEx reported that its full-year net profit rose 54% to 7.96 billion Hong Kong dollars (US$1.02 billion) in 2015, up from HK$5.17 billion a year earlier. The company’s rising profitability came as average daily trading volume rose 52%. It also booked a gain from the sale of a property in the third quarter.

The strong earnings lifted shares of Hong Kong Exchanges by 3.5% Wednesday, giving it a market value of more than $27 billion.

News of the advanced discussions between London Stock Exchange and Deutsche Börse—a merger that would create a combined company with a value of about $28 billion—has rippled through the clubby world of stock-exchange operators.

Exchanges, once monopolies and a focus of national pride, have spent the past decade doing deals and cutting costs under pressure from fast-expanding upstarts. A Deutsche Börse-LSE deal would leave three giant global exchange companies: U.S. market leaders CME Group Inc. and Intercontinental Exchange Inc. or ICE, along with the merged LSE-Deutsche Börse, which would be the biggest exchange operator in Europe by the value of shares traded.

ICE, owner of the New York Stock Exchange, said Tuesday it was studying a bid for LSE, but had yet to make a decision and hadn’t approached the company. CME, the operator of the Chicago Mercantile Exchange, is also considering an approach for LSE, according to a person familiar with the matter.

This would be at least the third attempt by the London and Frankfurt exchanges to merge. The talks are being driven not by stocks but by derivatives, instruments such as futures and options that command higher margins and are harder for rivals to replicate. European exchanges have been facing intense competition from their U.S. counterparts in those markets. A combination of the two European companies could help fend off that pressure.

Source: WSJ

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