The board of the London Stock Exchange has “unanimously rejected” an approach by its Hong Kong rival after the Asian bourse made a surprise £32bn bid to take over the 321-year-old City institution earlier this week.

In an uncompromising response to the approach, which the London Stock Exchange Group (LSEG) described as a “significant backward step”, the UK firm said it saw “no merit in further engagement” with Hong Kong Exchanges and Clearing (HKEX).

It added that the proposal undervalued its business, lacked strong commercial rationale and would be difficult to implement because of the Asian company’s ties to the Hong Kong government.

In a statement, the LSE said: “Further to the announcement on 11 September 2019, the board of London Stock Exchange Group, together with its financial and legal advisers, has now considered the unsolicited, preliminary and highly conditional proposal from Hong Kong Exchanges and Clearing to acquire the entire share capital of LSEG.

“The board has fundamental concerns about the key aspects of the conditional proposal: strategy, deliverability, form of consideration and value. Accordingly, the board unanimously rejects the conditional proposal and, given its fundamental flaws, sees no merit in further engagement.”

In a letter to HKEX’s chairwoman, Laura Cha, and its chief executive, Charles Li, the LSEG chairman, Don Robert, also indicated that the company’s connections to the Hong Kong government meant any deal would face difficulties in gaining approval. Almost half of HKEX’S board is appointed by the Hong Kong government, which in recent weeks has been struggling in the face of a string of protests.

Robert wrote: “There is no doubt that your unusual board structure and your relationship with the Hong Kong government will complicate matters. Accordingly, your assertion that implementation of a transaction would be ‘swift and certain’ is simply not credible.

“On the contrary, we judge that the approval processes would be exhaustive and that support from relevant parties, vital for the transaction, is highly uncertain. This would pose serious risk for our shareholders.”

Chinese companies have made 15 big acquisitions in the UK so far this year, spending £6.75bn – already more than the $6bn spent on 23 deals last year. Many analysts point to the decline in the pound since the EU referendum for making UK companies look more attractive to overseas buyers.

Li said earlier this week that the Hong Kong exchange was not a Chinese company and pointed to the fact that seven years ago HKEX had bought the London Metal Exchange, the centre for global metals trading, in a deal that transformed the group into a global player.

The approach also came weeks after the LSEG unveiled its own global expansion plan with a $27bn (£22bn) deal to take control of Refinitiv, a financial data business that supplies information screens used on bank trading floors worldwide.

The LSE agreed that deal in an attempt to become a UK-headquartered global rival to the billionaire Michael Bloomberg’s financial news and data business. HKEX, whose largest shareholder is the Hong Kong government, is hoping to derail that deal and take control of the London Stock Exchange.

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Shares in the LSE, initially lost about 1% on the news it had rejected HKEX but the price quickly bounced back.

When the proposed tie-up was announced on Wednesday, LSE shares initially jumped by 16% – but later fell back to £71.62, a rise of just over 5% - as investors expressed doubt about whether the Hong Kong proposal would be successful. The shares were changing hands at just over £75 in afternoon trading on Friday, up 3.6% on the day.

Since 2000, the LSE has been the target of seven proposed takeovers or mergers and all have failed. The last was in 2017, when a £21bn merger with German rival Deutsche Börse was blocked by the European commission.

HKEX declined to comment.