Hong Kong bourse drops $36.1 billion bid to buy London Stock Exchange

Hong Kong Exchanges and Clearing Ltd, the operator of the Hong Kong stock exchange, said on Tuesday that it will not proceed with its 29.6 billion pounds ($36.1 billion) bid for the London Stock Exchange (LSE), as it has been unable to convince the LSE management about its vision of creating "a world-leading market infrastructure group".

"The level of engagement from the LSE led us to conclude that the continued pursuit of a combination of the two businesses would not be in the best interests of our own shareholders," chief executive of the HKEX Charles Li Xiaojia wrote in a blog post on Tuesday.

According to United Kingdom takeover rules, the HKEX will have to walk away from the deal for at least six months if it does not make a formal offer before the stipulated deadline of Oct 9.

Li said they are quite clear that the tie-up will be full of challenges, but still made the proposal at a tough time. It was because they are not willing to lose the opportunity of striving for this valuable strategic project.

"I don't have a crystal ball, but I am reminded of Lewis Carroll, the much-loved British children's author of Through the Looking Glass who once said, 'We only regret the chances we didn't take.' My job at HKEX is, along with the board and the management team, to make sure we take those chances with our eyes wide-open, balancing risk and opportunity," he said.

The HKEX first came up with the unexpected cash-and-stock bid for its bourse operating rival in London on Sept 11, aiming to solidify its role as a gateway for the flow of capital between the Chinese mainland and Western markets.

But the approach was rejected by the LSE. David Schwimmer, LSE's chief executive, wrote in a letter that the exchange preferred Shanghai over Hong Kong as a long-term partner to access the Chinese markets.

Meanwhile, the HKEX's approach had threatened the LSE's own $27 billion plan to buy data and analytics company Refinitiv. The HKEX had said the LSE would have to drop the Refinitiv purchase for its offer to go ahead. But the LSE believed the Refinitiv deal made more strategic sense for them.

However, before the announcement on Tuesday, the HKEX did not give up the bid plan. It has made a huge amount of work and discussions with regulators and shareholders. Reuters reported that several LSE shareholders urged the Hong Kong bourse operator to raise the offer by 20 percent.

But many HKEX shareholders have been worried that it will bring potential financial burden.

"The abandoning of the acquisition will boost the share price of HKEX, as it will not need to borrow a huge sum of money for the deal," said Gordon Tsui Luen-on, chairman of the Hong Kong Securities Association and HKEX shareholder.

He said he was not surprised to see the bourse drop its plan as HKEX's takeover of LSE is progressive but does not meet its strategic demands. He added the HKEX will consider other acquisition targets for expanding its business in the future.