Hong Kong Stock Exchange Drops Bid For London Rival

The Hong Kong Stock Exchange on Tuesday dropped its multibillion-dollar takeover bid for the prized London Stock Exchange Group, which would have created a global markets titan.

Hong Kong Exchanges and Clearing Limited (HKEX) said in a statement that it was "disappointed" to pull its bid -- but that the move was in the best interests of its shareholders.

In a brief reaction statement, London Stock Exchange Group (LSEG) said it "remains committed to and continues to make good progress on its proposed acquisition of Refinitiv" that remains on track to complete in the second half of next year.

The HKEX cash-and-shares bid for LSEG worth ?32 billion ($40 billion, 36 billion euros) had been dependent on the axing of the latter's planned acquisition of US financial data provider Refinitiv for $27 billion.

HKEX made its shock proposal on September 11 before LSEG formally rejected the offer the following day, citing "fundamental" flaws and concerns over its ties to the Chinese city's government.

"HKEX under the helm of chief executive Charles Li has been on an expansion drive both East and West for years, acquiring the London Metal Exchange in 2012 and later expanding its trading link with mainland China," noted Fiona Cincotta, senior market analyst at City Index trading group.

"But the attempt to take over the LSEG proved a step too far as the London exchange fended off the bid that would have created a $70-billion company, suspecting that eventually HKEX's links to the local government would have led to political interference in the markets," she added Tuesday.

HKEX chairman Laura Cha said at the time of the offer that it represented a "compelling" opportunity and would bring together the largest and most significant financial centres in Asia and Europe.

On Tuesday, HKEX said that "despite engagement with a broad set of regulators and extensive shareholder engagement, the board... is disappointed that it has been unable to engage with the management of LSEG".

Shares in HKEX closed up 2.3 percent on Tuesday to finish at HK$231.20.

LSEG shares slid to stand down 5.2 percent to ?70.60 in London afternoon trading.

In a blog post, Li said the "goal is to keep moving forward, reinforcing HKEX's role and building Hong Kong's strength as a financial market".

Hong Kong lawmaker and HKEX shareholder Christopher Cheung criticised the unsolicited takeover bid, telling financial data and news provider Bloomberg the "whole offer was a farce".

"When HKEX announced the offer, I thought they've already had discussions with London Stock Exchange and their regulators.

"It turns out they have not. HKEX now must address the danger of stagnant business growth," he added.

Since the HKEX unveiled its takeover offer last month, LSEG stock has held stubbornly below the bid level -- which stood at more than ?83 per share -- as investors remained unconvinced.

Refinitiv meanwhile will help LSEG shift from generating revenue solely from the trading of securities to providing investors information about trading, which will put it in direct competition with Bloomberg.

The transformational Refinitiv deal comes two years after LSEG's failed ?21-billion merger with Germany's Deutsche Boerse.

That proposal -- the third failed attempt at a tie-up between the British and German stock exchange operators -- was blocked by the European Commission on competition fears.