The London Stock Exchange Group (LSE) has rebuffed the £31.6 billion bid from its Hong Long rival in a blistering rejection that branded the approach “fundamentally flawed”.
The LSE said its board unanimously rejects the proposed takeover from Hong Kong Exchanges and Clearing (HKEX) and said it sees “no merit” in holding talks with the suitor.
But HKEX hit back within hours, saying it would now take its proposals directly to LSE shareholders, as it attempts to win over backing.
If enough shareholders agree to the plans, it could lead to a hostile takeover.
Aside from flaws in the proposal, the LSE also said the £83.61 a share price “falls substantially short”.
The LSE said: “The board has fundamental concerns about the key aspects of the conditional proposal: Strategy, deliverability, form of consideration and value.
“Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement.”
Shares in the LSE lifted 3%.
Its withering put-down comes after HKEX launched its surprise cash-and-shares takeover bid on Wednesday in a move set to disrupt the LSE’s planned 27 billion US dollars (£21.9 billion) deal to buy data provider Refinitiv.
But HKEX said it believed a takeover would be more beneficial to the LSE than its deal with Refinitiv, which would have to be scrapped if a deal is reached.
In a statement, the company said it “continues to believe that the proposed combination with (LSE) represents a highly compelling strategic opportunity to create a global market infrastructure leader.
“The board of HKEX had hoped to enter into a constructive dialogue with the Board of (LSE) to discuss in detail the merits of its proposal and are disappointed that (LSE) has declined to properly engage.
“In particular, HKEX had hoped to demonstrate why it believes that the benefits of its proposal significantly outweigh those of the proposed acquisition of Refinitiv.”
“HKEX believes that shareholders in LSE should have the opportunity to analyse in detail both transactions and will continue to engage with them.”
While shares in LSE initially surged on Wednesday’s shock announcement, they soon pared back gains as investors grew sceptical over its chances of success.
In its letter to HKEX bosses, LSE chairman Don Robert said the board was “surprised and disappointed” that the approach was published just two days after they were given sight of it.
He went on to say that its planned deal with Refinitiv has “strategic logic” and has so far been well received by investors, given that shares have risen by around 29% since the deal was announced.
“In stark contrast, the high geographic concentration and heavy exposure to market transaction volumes in your business would represent a significant backward step for LSE strategically,” he added.
The LSE also has concerns over the HKEX’s relationship with the Hong Kong government – which is the biggest shareholder in the exchange, with a 6% stake.
And it said there are worries over the structure of the proposed bid, being three quarters based on HKEX shares, which the LSE believes are “inherently uncertain”, especially given the unrest and protests in Hong Kong.
The LSE sees the importance of the Chinese market and Asia, but does not believe HKEX is the best route into that, instead preferring its existing partnership with the Shanghai Stock Exchange.
Mr Robert concluded: “Irrespective of the considerations above, and even assuming your proposal were deliverable, its value falls substantially short of an appropriate valuation for a takeover of LSEG, especially when compared to the significant value we expect to create through our planned acquisition of Refinitiv.”
Neil Wilson, chief market analyst at Markets.com, said it was “no great surprise to see the LSE board has politely but firmly rejected the HKEX bid”.
He said: “Unattractive, offering a puny dowry and coming with volatile and unpredictable parents, HKEX never looked like the ideal bride.”
“The question now is whether the Americans come in with a counter offer.”