SEC Review Leads to Chinese Withdrawal from Acquisition of Chicago Stock Exchange

Chongqing Jintian Industrial Company and Chongqing Longshang Decoration Company have pulled out of a joint deal to acquire the Chicago Stock Exchange (CHX).  While neither firm provided a reason for their decision, it appears to have come in the same window as the Securities and Exchange Commission (SEC) declining to provide their approval.

Companies from the Chinese city of Chongqing had been pursuing a takeover of the CHX since February 2016, when Chongqing Casin Enterprise Group entered into a definitive agreement to purchase the bourse.  Those with knowledge of the deal placed its value at just under $100 million.  The Committee on Foreign Investment in the United States (CFIUS) reportedly gave their approval of the deal in the second half of 2016.  If the influence of the SEC’s review is accurate, it is unusual that the SEC would be more security-minded than CFIUS.  The nature of this review and the underlying process dictating how it functions is unclear.

On June 10, 2017, the SEC announced a 60-day delay on its decision, with another delay disclosed on August 10.  The SEC’s hesitance to clear the way for the deal to move forward may have been influenced by an effort by members of Congress to generate a review process by the SEC with the intention to scuttle the deal.   The slow pace of the review and the reputational damage being done in the meantime is thought to have influenced Jintian’s and Longshang’s decision to withdraw.

It is unclear whether other companies may fill the place of Jintian and Longshang in the takeover bid. Reports from Reuters indicate that these firms were only members of a consortium led by Casin Enterprise Group.  The provenance of the three firms points to the possible involvement of Chongqing authorities in the pursuit of the deal.  The politically-motivated corruption charges against Chongqing Party Secretaries Bo Xilai and Sun Zhengcai in recent years could influence further advocacy for the deal.