LONDON (Reuters Breakingviews) - The Hong Kong stock exchange’s proposed $37 billion bid for its London rival has plenty of ambition. It is, however, short of credibility with investors. Shares in Hong Kong Exchanges and Clearing , owner of the Chinese territory’s bourse, barely budged on Thursday, their first trading session since the company revealed its bold cash-and-share offer for London Stock Exchange Group the previous day. That’s probably a sign that shareholders don’t think it is going to happen.

One of the reasons HKEX decided to go public with the plan was to give its target a clearer sense of the substance of its proposal. Three-quarters of the value of the suitor’s bid is in the form of its Hong Kong-listed shares, with the rest in cash. That made the HKEX share price reaction to the plan crucial: a big drop would make the bidder’s plan less attractive to LSE investors.

On the face of it, the mere 3.5% decline in HKEX shares on Thursday is therefore welcome for Chief Executive Charles Li. At current prices and exchange rates, the proposal is worth about 81.71 pounds per LSE share – about a fifth more than the target’s closing price before the news broke.

However, the LSE’s price tells a different story. Shares in the company run by CEO David Schwimmer were changing hands at about 72.52 pounds on Thursday afternoon. That’s 6% more than on Tuesday but about 11% below the price implied by HKEX’s offer. The clear conclusion is that shareholders are attaching a low probability to HKEX’s offer proceeding.

That calculation will doubtless influence the LSE board, which is likely to issue its formal response to the proposal in the coming days. The company probably wants to push ahead with its own $27 billion takeover of Refinitiv, the financial data provider which is part-owned by Thomson Reuters . HKEX has made its offer conditional on LSE shareholders cancelling that deal. The Hong Kong-London tie-up also faces an uncertain reception from regulators and politicians in the United Kingdom. If HKEX wants its bid to go ahead, it needs to overcome that credibility gap.

CONTEXT NEWS

- The London Stock Exchange’s board will meet in the coming days to make a decision on Hong Kong Exchanges and Clearing’s surprise takeover proposal, a source close to the British company told Reuters on Sept. 12.

- The unsolicited offer is not expected to succeed given a preference among LSE investors for the exchange to complete its $27 billion proposed acquisition of data and analytics group Refinitiv, the source close to the LSE said.

- LSE shares were trading at 72.52 pounds, up 0.6%, by 1430 GMT on Sept. 12. HKEX shares closed at HK$237.4, down 3.5%.

(Editing by Swaha Pattanaik and Katrina Hamlin)

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