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Hong Kong exchange shares fall as political risks of $39 billion LSE approach weigh

HONG KONG (Reuters) – Shares in the Hong Kong stock exchange fell more than 3% on Thursday as investors cast doubt on the merits of its $39 billion takeover approach to London Stock Exchange Plc (LSE) (LSE.L), a deal that would create a global financial giant.

The approach, made public after the city’s markets closed on Wednesday, received a cool response in London, where LSE shares finished up 5.9% – far short of the premium implied by the indicative offer from Hong Kong Exchanges and Clearing Ltd (HKEX) (0388.HK).

HKEX shares were off 3.3% in afternoon trade in Hong Kong, underperforming the blue-chip Hang Seng Index .HSI which was down 0.3%.

The proposed deal aims to create an exchange powerhouse spanning Asia and Europe which would be better able to compete with U.S. rivals such as Intercontinental Exchange Inc (ICE.N) and CME Group inc (CME.O).

But tough political and technical challenges have already emerged.

The HKEX proposal is conditional on LSE abandoning a $27 billion acquisition of financial information provider Refinitiv from U.S. private equity firm Blackstone Group Inc (BX.N) and Thomson Reuters Corp (TRI.TO). Thomson Reuters is the parent of Reuters News.

That deal, which went public in late July, caused LSE’s shares to leap 15% on hopes Refinitiv’s financial data business would boost LSE’s long-term profitability. LSE said in a statement on Wednesday that it remained committed to the Refinitiv deal.

The approach by the HKEX also comes as Hong Kong enters a fourth month of sometimes violent protests sparked by legislation that would have drawn the former British colony closer to the Chinese legal system.

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