Hong Kong Stock Exchange Offers to Buy Its London Counterpart

HONG KONG — The owner of the Hong Kong Stock Exchange said on Wednesday that it had offered $36.6 billion to buy the London Stock Exchange, making a bid to create a global trading giant that would combine a European institution with fast-growing Asian economies.

A deal is far from assured, however. It depends on the London exchange abandoning its own deal, struck just weeks ago, to buy a data company called Refinitiv. On Wednesday, the London exchange said that it would consider the unsolicited offer from Hong Kong but that it remained committed to completing the deal for Refinitiv.

The Hong Kong proposal could face other hurdles as well. British officials, like their counterparts around the world, have put greater scrutiny on deals involving China, of which Hong Kong is a semiautonomous region. Antigovernment demonstrations in Hong Kong this summer have highlighted shifts in the city’s unusual relationship with Beijing and called into question the long-term viability of its reputation for an independent judiciary and as a hub for global business.

Reflecting the uncertainty, the London exchange’s shares surged after the deal was announced before falling below the Hong Kong exchange’s offer price, suggesting that many investors believed a deal would not be completed.

Executives at Hong Kong Exchanges and Clearing Limited, the company that owns the Hong Kong exchange, dismissed the concerns. Key managers would continue to run the London Stock Exchange, they said, and the offer itself represented an endorsement of London’s future as a global financial hub.

They also dismissed concerns that regulators would look skeptically at a deal from a Hong Kong company, citing their company’s successful 2012 purchase of the London Metal Exchange.

“We are not a Chinese company, and we are not even a simple Hong Kong company,” Charles Li, chief executive of Hong Kong Exchanges, said in a conference call with reporters. “We are a global company.”

Both the Hong Kong and the London exchanges have sought merger partners to deal with a rapidly shifting world for the trading of stocks, bonds and other securities. The rise of new electronic trading platforms and methods have forced them to cross borders to better appeal to companies that no longer necessarily see one country as their home.

Stock exchange executives have been trying to persuade foreign companies to pick overseas exchanges as their primary markets. American executives regularly travel to Asia to try to persuade fast-growing private companies to list their shares in the United States, rather than Hong Kong or Tokyo.

Stock exchanges have been transformed as a result. In the United States, both the New York Stock Exchange and the Nasdaq Stock Market are now part of broader, more global companies.

The London exchange has tried to do the same. Two years ago, European antitrust regulators blocked it from merging with Deutsche Börse Group, a deal which would have created a major market operator across Europe. It also tried to combine with the Toronto Stock Exchange nearly a decade ago.

Its appetite for a deal with the Hong Kong exchange is not clear, however. The Refinitiv proposal represented the London exchange’s own major bet on how to navigate shifting financial markets. Market data has emerged as a potential area of growth. The deal with Refinitiv would be a $27 billion transaction, including debt, and could make the exchange too big and difficult for a suitor like the Hong Kong exchange to buy.

Mr. Li and other Hong Kong exchange executives said the Refinitiv deal had galvanized them to act. “We know we were late,” Mr. Li said, “and we don’t want to be late again.”

The Hong Kong exchange is making its offer at a turbulent time. It has long prospered from Hong Kong’s traditional status as a gateway between mainland China and the rest of the world. Many big state-run Chinese companies have listed there, and global investors have flocked to Hong Kong to buy shares of fast-growing Chinese companies like Tencent, the powerful internet conglomerate.

Those ties have begun to be a burden, however. The trade war between the United States and China has contributed to a slowdown in trading on Hong Kong’s exchange.

In the longer term, the exchange and other Hong Kong companies face difficult questions about their future.

Hong Kong is Chinese territory but operates under its own laws, which international businesses and investors find attractive compared with conditions on the mainland, where the courts are undependable and controlled by Beijing. But the recent mass protests, fueled in part by a more assertive hand from Beijing in Hong Kong affairs, have raised questions about how long that arrangement can last. On Friday, Fitch Ratings, the credit rating firm, downgraded its outlook on Hong Kong, saying the unrest had tested the city’s capacity to remain distinct.

On Wednesday, Mr. Li rejected the idea that the Hong Kong exchange would want to loosen its ties to the mainland. He noted London’s ambition to become a global center for trading in the renminbi, the Chinese currency, and said the Hong Kong exchange could help fulfill that. Beijing heavily restricts the currency from crossing its borders, but some Chinese officials have openly discussed a day when the world might use the renminbi as commonly as they use the American dollar, which would give China greater say in the global financial system. Should London become a hub for renminbi use, more Chinese companies and investors would consider the city an even more attractive place to do business.

The Hong Kong exchange’s offer also represents a ringing endorsement of London’s future despite the uncertainty stirred up by Britain’s effort to leave the European Union, which has left many questioning the city’s prospects as a financial hub.

“We see no reason why any of the temporary difficulties and challenges that everybody is going through should be the obstacle for some great things to happen,” Mr. Li said.

Under the Hong Kong exchange’s offer, shareholders of the London exchange would receive a mix of cash and stock that would value the company at $36.6 billion, roughly 20 percent more than the shares were valued at earlier this week.

The Hong Kong exchange said most benefits of the merger would come from fusing technology. The Hong Kong exchange has been looking to bolster its trading systems. In return, the combined company could offer companies and investors a broad, common platform for trading that would be open 18 hours a day.