© Reuters. FILE PHOTO: The name of Hong Kong Exchanges and Clearing Limited is displayed at the entrance in Hong Kong

HONG KONG (Reuters) – Hong Kong Exchanges and Clearing Ltd (HKEX) (HK:) shares fell more than 3% on Thursday after the bourse unveiled a $39 billion takeover approach to the London Stock Exchange Plc (LSE) (L:) on Wednesday.

HKEX shares fell as much as 3.7% in opening deals, while the benchmark Hang Seng Index () was up 0.1%, suggesting investors are concerned about the financial merits of the deal.

The proposed deal is aimed at creating a combined group better able to compete with U.S. rivals such as Intercontinental Exchange Inc (N:) and CME Group inc (O:). It is contingent on LSE abandoning a deal to acquire financial information provider Refinitiv.

HKEX, whose main shareholder is the Hong Kong government, said its 31.6 billion pound ($38.97 billion) cash-and-share transaction proposal represented a 22.9% premium to the LSE’s closing stock price on Tuesday of 8,361 pence.

The Hong Kong exchange’s bid is considered a bet that a major international acquisition would help it overcome uncertainty at home.

Political unrest in Hong Kong is entering its fourth month, with protests becoming increasingly violent over that time – raising questions among companies and investors about the appeal of the city’s bourse.

Analysts say Hong Kong’s status as part of China could make it hard to win approval for the deal from British politicians and European regulators.

“The transaction will require various regulatory approvals, which will stress-test the world’s understanding of Hong Kong’s ‘one country, two systems’ constitution,” said David Blennerhassett, an independent analyst writing on the SmartKarma research platform.

“It will be politically tough now and in the near-term to get this through various regulatory channels,” he added.

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