The London Stock Exchange Group on Friday turned down a takeover bid by the Hong Kong Stock Exchange, citing "fundamental" flaws and concerns over its ties to the Hong Kong government.
In a statement, LSEG said management "unanimously rejects the conditional proposal" from Hong Kong Stock Exchange (HKEX) and "given its fundamental flaws, sees no merit in further engagement" regarding the offer worth almost £32 billion ($40 billion, 36 billion euros).
"There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters," LSEG told HKEX bosses in a letter published alongside the rejection statement.
Analysts said the LSEG had been "spooked" by recent pro-democracy protests in Hong Kong.
The owner of the London and Milan stock exchanges added Friday that it "remains committed to and continues to make good progress on its proposed acquisition" of US financial data provider Refinitiv.
The HKEX on Wednesday said its cash and shares offer for LSEG was conditional on terminating the Refinitiv deal.
- Bid falls 'substantially short' -
The British company on Friday said that the offer "falls substantially short of an appropriate valuation for a takeover".
The letter added that a tie-up with HKEX "would represent a significant backward step for LSEG strategically", while the British group expects to create "significant value" from its purchase of Refinitiv.
The HKEX had argued on Wednesday that a deal would create a combined group "ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China".
In response, LSEG said Friday that it recognised "the scale of the opportunity in China and value greatly our relationships there.
"However, we do not believe HKEX provides us with the best long-term positioning in Asia or the best listing/trading platform for China.
"We value our mutually beneficial partnership with the Shanghai Stock Exchange which is our preferred and direct channel to access the many opportunities with China," the letter said.
The takeover bid came one month after the LSEG embarked on a huge deal to acquire Refinitiv, a move that would create a market information giant to rival US titan Bloomberg.
The 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.
- 'Spooked' by current climate -
In late afternoon deals, LSEG shares rallied 3.28 percent to £74.90 on investor relief.
The benchmark FTSE 100 index, on which it is listed, won 0.2 percent in value heading into the weekend.
"The LSEG ... said HKEX's relations with the Hong Kong government would 'complicate' matters," CMC Markets David Madden told AFP.
"It seems that the current climate in Hong Kong is a major factor in the rejection of the bid.
"At the moment Hong Kong is not exactly saying they are open for international business, and that seems to have spooked LSEG."