London Stock Exchange
The London Stock Exchange Group offices are seen in the City of London, Britain (Photo: Reuters / Toby Melville)

The London Stock Exchange has formally rejected Hong Kong's acquisition offer. The bourse explained in a statement released on Friday that it found the $37 billion bid to be too low.

The exchange also explained that there was too much political risk involved and that there was no real strategic merit to be had with the acquisition.

According to the LSE, all of the company's board members had voted unanimously to reject the offer made by the Hong Kong Exchanges and Clearing (HKEX). The LSE elaborated that there were some "fundamental flaws" in the bourse operator's proposal and that there was no need for further engagement.

Apart from rejecting the takeover bid, the LSE revealed that it still remains committed to its planned acquisition of the financial data firm Refinitiv.

Market experts had mostly expected the bid to fail given the strong concern over reduced competition and the increase in Chinese influence over global financial markets.

LSE Chairman, Don Roberts, mentioned in a statement that he was very much disappointed that the HKEX had published its unsolicited proposal just two days after it had sent it out. The bid was reportedly publicly revealed on Wednesday last week, which means that the LSE had received the bid on Monday.

Despite the strong rejection, the HKEX responded by stating that it still will not give up on its efforts to acquire the exchange. The Chinese bourse operator added that its proposal had provided a "highly compelling" opportunity for the LSE.

HKEX also suggested that it may be submitting an improved offer that will be hard to resist for LSE's investors. The company explained that LSE's shareholders should have the option of choosing the transaction that will best benefit everyone involved. The offer will apparently be as compelling, if not more so, that the LSE's planned acquisition of Refinitiv.

While the HKEX did not elaborate further on what their next offer would be, analysts at Citi have speculated that the second offer might involve added cash and improved terms.

However, some analysts have remained skeptical of the possibility of a takeover given the numerous regulatory and political hurdles that have to be resolved.

The LSE pointed out in its rejection letter that the HKEX's relationship with the Hong Kong government still posed a lot of concerns and it would be very unlikely for it to receive the necessary approvals. Half of the HKEX board is directly appointed by the Hong Kong government and an appointment of a new chairman has to be approved by Hong Kong's CEO Carrie Lam.