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Commercial Awareness Update- September 2019
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<blockquote data-quote="ELA" data-source="post: 13463" data-attributes="member: 1562"><p><strong><u>4. The HKEX’s Unsolicited Bid to Acquire the LSEG ([USER=1643]@Moni[/USER])</u></strong></p><p></p><p><strong>The Story </strong></p><p></p><p>Last week, the Hong Kong Exchanges and Clearing (HKEX) made a £32bn offer to acquire the London Stock Exchange Group. HKEX hopes to use a potential acquisition to connect Chinese capital markets with the rest of the global financial system. A successful acquisition of the LSE would make HKEX the <a href="https://www.ft.com/content/ef277884-d7c4-11e9-8f9b-77216ebe1f17" target="_blank">largest exchanges operator</a> in the world by revenues.</p><p></p><p>The London Stock Exchange, which was taken unawares by the HKEX’s bid, has since rejected the offer and cited issues with the proposed deal structure as well as concerns over political stability in Hong Kong. Currently, the Hong Kong government appoints more than half of the HKEX’s board, and as such, political risk will be a key concern for the LSE. However, HKEX still has three weeks left to make a formal bid under <a href="http://www.thetakeoverpanel.org.uk/the-code/download-code'" target="_blank">UK Takeover rules</a>, and plans to directly approach LSE investors and stakeholders to preside the board to accept their offer.</p><p></p><p><strong>Impact on Businesses and Law Firms </strong></p><p></p><p>In addition to the LSE board, HKEX is also having discussions with regulators and politicians in the UK, including the Financial Conduct Authority, the Takeover Panel and the Bank of England. Moreover, the HKEX will need to receive approval from Consob, the regulator of LSE’s Italian business.</p><p></p><p>The HKEX bid, if successful, would result in the breakup of the LSE’s <a href="https://www.ft.com/content/54c886d8-b420-11e9-8cb2-799a3a8cf37b" target="_blank">agreed deal to buy Refinitiv</a><em>, </em>a data and trading group. The LSE has agreed to buy Refinitiv for £27bn as part of a strategic plan to pivot towards financial data and away from its traditional trading business. In its offer, HKEX tries to highlight the weaknesses of the Refinitiv deal. However, the deal was well received by the market and LSE shares soared nearly 30% after it announced that it would pivot into data and away from its traditional trading business.</p><p></p><p>Finally, the HKEX’s bid is yet another illustration of the consolidation trend in the exchange industry which will be of particular concern for regulators and antitrust lawyers, who will be looking to ensure that consolidation does not result in any market unfairness. The long review process of the LSE/Refinitiv deal is illustrative of the close scrutiny that regulators will give any large consolidation proposals.</p><p></p><p></p><p></p><p><strong><u>5. The European Central Bank’s Latest Stimulus Package ([USER=1562]@ELA[/USER])</u></strong></p><p></p><p><strong>The Story</strong></p><p></p><p>Last Thursday, the European Central Bank (ECB) cut its baseline interest rate to -0.5% and announced that it will resume its quantitative easing programme (QE), buying European government and company bonds every month from November 2019 until inflation expectations come “sufficiently close to, but below, 2%”.</p><p></p><p><strong>Impact on Businesses and Law Firms</strong></p><p></p><p>The ECB’s stimulus package comes amid concerns that the Eurozone economy is headed towards a recession: Eurozone production fell more than expected for consecutive months this summer, and consumer prices had risen by only 1% in the year to August 2019, well below the ECB’s target. </p><p></p><p>The ECB aims to encourage borrowing and spending: QE is meant to inject money directly into the economy, and lower interest rates mean borrowing is cheaper for businesses and saving discouraged, as the return on money deposited in savings accounts is low. If successful, the measures could lead to more activity for law firms’ corporate and project finance departments, for example.</p><p></p><p>Yet, the stimulus package has raised concerns and attracted criticisms. First, some argue that interest rates have been low for so long that businesses have taken advantage of them already. Second, there is a risk that lowering interest rates could slow the economy further, as businesses start expecting future cuts and wait to borrow and invest. Third, QE has been criticised for fuelling asset bubbles by inflating prices.</p><p></p><p>In addition, lower interest rates lead to lower lending revenue for banks, and negative rates mean they have to pay the ECB to hold their money. Volker Hoffman, of the Association of German Banks, said that Eurozone lenders already pay about €7.5bn a year in negative rates on the excess deposits they hold at the ECB. There are therefore fears that banks’ margins will be eroded further because of the ECB’s actions. However, the ECB did announce measures to counter this, such as a tiering system to exclude some excess deposits from negative rates and offering cheap loans for banks.</p></blockquote><p></p>
[QUOTE="ELA, post: 13463, member: 1562"] [B][U]4. The HKEX’s Unsolicited Bid to Acquire the LSEG ([USER=1643]@Moni[/USER])[/U][/B] [B]The Story [/B] Last week, the Hong Kong Exchanges and Clearing (HKEX) made a £32bn offer to acquire the London Stock Exchange Group. HKEX hopes to use a potential acquisition to connect Chinese capital markets with the rest of the global financial system. A successful acquisition of the LSE would make HKEX the [URL='https://www.ft.com/content/ef277884-d7c4-11e9-8f9b-77216ebe1f17']largest exchanges operator[/URL] in the world by revenues. The London Stock Exchange, which was taken unawares by the HKEX’s bid, has since rejected the offer and cited issues with the proposed deal structure as well as concerns over political stability in Hong Kong. Currently, the Hong Kong government appoints more than half of the HKEX’s board, and as such, political risk will be a key concern for the LSE. However, HKEX still has three weeks left to make a formal bid under [URL="http://www.thetakeoverpanel.org.uk/the-code/download-code'"]UK Takeover rules[/URL], and plans to directly approach LSE investors and stakeholders to preside the board to accept their offer. [B]Impact on Businesses and Law Firms [/B] In addition to the LSE board, HKEX is also having discussions with regulators and politicians in the UK, including the Financial Conduct Authority, the Takeover Panel and the Bank of England. Moreover, the HKEX will need to receive approval from Consob, the regulator of LSE’s Italian business. The HKEX bid, if successful, would result in the breakup of the LSE’s [URL='https://www.ft.com/content/54c886d8-b420-11e9-8cb2-799a3a8cf37b']agreed deal to buy Refinitiv[/URL][I], [/I]a data and trading group. The LSE has agreed to buy Refinitiv for £27bn as part of a strategic plan to pivot towards financial data and away from its traditional trading business. In its offer, HKEX tries to highlight the weaknesses of the Refinitiv deal. However, the deal was well received by the market and LSE shares soared nearly 30% after it announced that it would pivot into data and away from its traditional trading business. Finally, the HKEX’s bid is yet another illustration of the consolidation trend in the exchange industry which will be of particular concern for regulators and antitrust lawyers, who will be looking to ensure that consolidation does not result in any market unfairness. The long review process of the LSE/Refinitiv deal is illustrative of the close scrutiny that regulators will give any large consolidation proposals. [B][U]5. The European Central Bank’s Latest Stimulus Package ([USER=1562]@ELA[/USER])[/U][/B] [B]The Story[/B] Last Thursday, the European Central Bank (ECB) cut its baseline interest rate to -0.5% and announced that it will resume its quantitative easing programme (QE), buying European government and company bonds every month from November 2019 until inflation expectations come “sufficiently close to, but below, 2%”. [B]Impact on Businesses and Law Firms[/B] The ECB’s stimulus package comes amid concerns that the Eurozone economy is headed towards a recession: Eurozone production fell more than expected for consecutive months this summer, and consumer prices had risen by only 1% in the year to August 2019, well below the ECB’s target. The ECB aims to encourage borrowing and spending: QE is meant to inject money directly into the economy, and lower interest rates mean borrowing is cheaper for businesses and saving discouraged, as the return on money deposited in savings accounts is low. If successful, the measures could lead to more activity for law firms’ corporate and project finance departments, for example. Yet, the stimulus package has raised concerns and attracted criticisms. First, some argue that interest rates have been low for so long that businesses have taken advantage of them already. Second, there is a risk that lowering interest rates could slow the economy further, as businesses start expecting future cuts and wait to borrow and invest. Third, QE has been criticised for fuelling asset bubbles by inflating prices. In addition, lower interest rates lead to lower lending revenue for banks, and negative rates mean they have to pay the ECB to hold their money. Volker Hoffman, of the Association of German Banks, said that Eurozone lenders already pay about €7.5bn a year in negative rates on the excess deposits they hold at the ECB. There are therefore fears that banks’ margins will be eroded further because of the ECB’s actions. However, the ECB did announce measures to counter this, such as a tiering system to exclude some excess deposits from negative rates and offering cheap loans for banks. [/QUOTE]
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Commercial Awareness Update- September 2019
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