A sign sits on a wall at the London Stock Exchange Group Plc headquarter offices in the City of London, U.K., on Wednesday, Sept. 11, 2019. Hong Kong Exchanges and Clearing Ltd. made an unexpected bid for LSE, which could potentially throw the European exchange's own transformative deal into jeopardy. Picture: CHRIS J RATCLIFFE
A sign sits on a wall at the London Stock Exchange Group Plc headquarter offices in the City of London, U.K., on Wednesday, Sept. 11, 2019. Hong Kong Exchanges and Clearing Ltd. made an unexpected bid for LSE, which could potentially throw the European exchange's own transformative deal into jeopardy. Picture: CHRIS J RATCLIFFE

London — London Stock Exchange Group (LSE) has rejected a takeover proposal from Asian rival Hong Kong Exchanges and Clearing (HKEX), saying the bid has “fundamental flaws”.

The board of the 300-year old British bourse, which is working on its own deal to buy data provider Refinitiv, said HKEX’s approach on Wednesday had problems in its “strategy, deliverability, form of consideration and value”.

“Your assertion that implementation of a transaction would be ‘swift and certain’ is simply not credible,” the firm said in a statement Friday. “Given the fundamental flaws in your proposal, we see no merit in further engagement.”

HKEX has said its takeover would only happen if the LSE ended its deal with Refinitiv — and that it could go hostile if the business resisted its plans to build an Anglo-Asian markets giant.

Shares in the LSE were up 1.6% after the announcement in London trading. The shares initially rose as much as 16% on Wednesday after HKEX said it wanted to combine the exchanges in a cash-and-stock deal that valued the London firm at £29.6bn. However, the stock pared gains after analysts poured cold water on the deal and top investors raised doubts about its attractiveness compared to the Refinitiv acquisition.

“I don’t expect HKEX to walk away without trying more,” said Massimo Stabilini, a former Paulson executive who now runs his own hedge fund, Sinclair Capital. “I expect them to come back with a better offer and with a higher cash component.”

The British government has the power to scrap the deal on public-interest grounds. On Wednesday it said LSE was a “critically important part of the UK financial system” and that it would be closely scrutinising details of the transaction.

Both firms have been involved in exchange merger deals in recent years, with LSE failing in its most recent attempt two years ago to combine with Deutsche Boerse. HKEX acquired London Metal Exchange in 2012 for £1.4bn.

With Nishant Kumar

Bloomberg