Hong Kong Exchanges and Clearing Limited (HKEX) refrained from sweetening its £29.6 billion (US$36.4 billion) bid to buy the London Stock Exchange Group (LSEG), after its overtures to create one of the world’s largest financial marketplaces were spurned by London executives. “The board of HKEX continues to believe that a combination of [London Stock Exchange Group] and HKEX is strategically compelling and would create a world-leading market infrastructure group,” the Hong Kong operator said in a regulatory statement on Tuesday morning. “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 realising this vision, and as a consequence has decided it is not in the best interests of HKEX shareholders to pursue this proposal.” By not making a so-called formal offer ahead of Wednesday’s deadline, the HKEX will not be able to pursue a bid for the London bourse operator for at least six months, according to United Kingdom takeover rules. HKEX shares rose by as much as 2.7 per cent in Hong Kong, in their biggest intraday advance in a month, as investors were relieved that the operator would not raise its financial leverage to buy LSEG. HKEX shares rose to an intraday high of HK$232.20. HKEX has just announced that it will not proceed with an offer for the London Stock Exchange Group. Read the announcement and the thoughts of Chief Executive Charles Li in his latest blog. https://t.co/vnEJLDFMGV pic.twitter.com/Jxv6CwphVn — HKEX 香港交易所 (@HKEXGroup) October 8, 2019 The decision was a setback for HKEX’s Chief Executive Charles Li Xiaojia, who announced his surprise cash-and-stock bid for LSEG on September 11 at £83.61 per LSE share. The combination of the two exchanges would have created one of the world’s largest markets for financial instruments, with an 18 hour trading window that spanned time zones from Asia to Europe, making it more attractive for giants such as Saudi Aramco to raise capital, compared with the New York Stock Exchange and Nasdaq. HKEX was the world’s top destination for initial public offerings (IPOs) in six of the past 10 years. Li, a former journalist before he became an investment banker, channelled Lewis Carroll, the much-loved British author of Through the Looking Glass . “I don’t have a crystal ball, but I’m reminded of Carroll, who once said, ‘We only regret the chances we didn’t take.’ My job as CEO 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,” Li said in a blog post on Tuesday. “I need to be rooted in our day-to-day business but forward-focused, certain that if we try something and it doesn’t work, we are strong enough and diverse enough to dust ourselves down and move forward. And today, in the absence of a looking glass, I am as certain as I can be, that we are.” Li’s unexpected bid for LSEG, unveiled within days of a surprise visit to London, came hot on the heels of the London bourse’s US$27 billion bid to buy the financial data provider Refinitiv. The HKEX bid was conditional on LSEG dropping its Refinitiv purchase. On Tuesday afternoon, LSE said it remained committed to and “continues to make good progress” on the proposed acquisition of Refinitiv, which is expected to close in the second half of 2020. “The announced offer was already very high, and there is no way for the HKEX to raise it further to satisfy LSEG’s shareholders,” said Christopher Cheung Wah-fung, a local legislator representing the financial services sector, who is also the founder and chief executive of Christfund Securities. “As an HKEX shareholder, I do not support the local bourse wasting its time on another overseas M&A,” said Cheung, whose brokerage received HKEX shares when the exchange operator listed in 2000. ”It should instead focus more to strengthen its IPO process to attract more companies engaged in China’s Belt and Road Initiative to list here. The only sensible deal would be to collaborate more with the stock exchanges of Shanghai and Shenzhen.” To be sure, the London bourse had tried to merge before, but failed to get regulators’ approval to combine with the Deutsche Boerse two years ago. US$36.6 billion offer for London Stock Exchange boosts Hong Kong M&A The London bourse operator rejected the HKEX deal on September 13 in a strongly worded letter, questioning its strategic sense and whether it could receive regulatory approval. At Sibos 2019 in London, on September 24, David Schwimmer, LSE’s chief executive, said the exchange preferred Shanghai over Hong Kong as a long-term partner to access the Chinese markets. “For the long term? For the financial centre of China? We view Shanghai as the financial centre of China,” Schwimmer said. “We value that partnership with the Shanghai Stock Exchange, we think it's mutually beneficial. In June, we launched Shanghai-London Stock Connect, the first of its kind.” The Connect scheme, a cross-border investment channel that allows Chinese investors to gain access to European equities via London, and for global investors to trade in Shanghai-listed shares via the LSEG, currently features one Chinese company in Huatai Securities, while China Pacific Insurance said last month it would list in London at a later date. No UK-based company is currently listed in Shanghai. HKEX put on a charm offensive to try to convince LSE shareholders to accept the deal, hiring HSBC and UBS to lobby shareholders directly. Several LSE shareholders urged the Hong Kong bourse operator this month to raise the offer by 20 per cent, according to a Reuters report. Some HKEX shareholders, however, were opposed to a potential improved bid, saying it presented more risk to them, including whether regulators would sign off on the combination. “The abandoning of the acquisition of LSE will boost the share price of HKEX, as it means the bourse operator will not need to borrow a huge sum of money for the deal,” Gordon Tsui Luen-on, broker and HKEX shareholder, as well as chairman of the Hong Kong Securities Association, said on Tuesday. He said he supported the deal. “HKEX’s takeover of LSE would help the local stock exchange to expand its global footprint. However, I would not have agreed to further raising the offer price, as that would mean the HKEX would have to shoulder more debt than the original proposal, which might add to HKEX’s the financial burden,” Tsui said. “The HKEX might consider other acquisition targets for expanding its business in the future,” he added. Hong Kong may have lost US$4 billion to Singapore during protests: report The bid for LSE came as Hong Kong has faced one of its worst political crises this summer, one that has raised questions about its future as an international financial centre. Protesters have taken to the streets over the past four months to demonstrate against a controversial extradition bill that would have made it easier to send criminal suspects to mainland China for trial. The bill has been formally withdrawn, but the protests – marked by increasingly violent clashes between demonstrators and police – have evolved into a larger discussion about income inequality, affordable housing and China’s growing influence over the city. At the same time, the UK is undergoing its own political crisis as it prepares to exit the European Union, possibly as soon as the end of this month. Questions remain about whether the UK will seek an extension, or crash out of the 28-nation bloc with no agreement.