Hong Kong Exchange Drops Bid for London's LSE—And Shares Surge

The Hong Kong Stock Exchange withdrew its $36.6 billion bid for London’s bourse on Tuesday morning, less than a month after its surprise takeover proposal.

The announcement drove HKEx shares to their biggest intraday advance in a month, with shares rising by as much as 3.6% on the news. Hong Kong shareholders previously expressed opposition to HKEx raising its bidding price, and Tuesday’s announcement closed the door on a costly escalation.

HKEx first offered to buy the London Stock Exchange Group in early September, and LSEG responded with a swift and blunt rejection. HKEx appeared unfazed and vowed to sweeten the offer, but instead declined to pursue the deal a day ahead of the formal offer deadline, which was Wednesday.

The Hong Kong operator said in a statement that it continues to believe a combination of the two exchanges would be “strategically compelling,” but that its attempts have been buffered by a lack of response from LSEG management.

“Despite engagement with a broad set of regulators and extensive shareholder engagement, the Board of HKEX is disappointed that it has been unable to engage with the management of LSEG in realizing this vision, and as a consequence has decided it is not in the best interests of HKEX shareholders to pursue this proposal,” the statement said.

Michael Wu, a senior equity analyst at Morningstar Investment Management, said the bid withdrawal was “not surprising,” due to the highly conditional nature of the offer and the need for cross-border regulatory approval.

Wu added that HKEx has other growth prospects as the exchange can “focus on their existing China strategy.”

If the takeover had succeeded, it would have been carried out at a time of significant political uncertainty in the homes of both exchanges: violent protests and growing unrest in Hong Kong and, in London, the looming spectre of Brexit, which at the moment has a deadline of Oct. 31.

The deal would have created a huge Eurasian exchange with an 18-hour operating day and cemented Hong Kong’s status as a gateway between mainland Chinese and European markets.

LSEG is now free to finalize its planned $27 billion acquisition of financial market data provider Refinitiv. HKEx had stated in its offer that the possibility of a takeover was contingent on London cancelling the Refinitiv deal.