Nasdaq bid to spark fresh battle for LSE

LONDON/NEW YORK - The London Stock Exchange was placed on full bid alert last night after rejecting a £2.4bn ($6.4bn) takeover approach from Nasdaq, the rival US exchange.

Just weeks after fending off a bid from the Australian investment bank Macquarie, Britain's most important financial institution is again under siege.

The New York Stock Exchange is widely expected to come in with a rival offer, leaving the LSE fending off at least two deals.

Nasdaq has been working on its bid in secret for weeks.

It has hired Greenhill, the boutique investment bank, and JP Morgan to advise it on how to structure the deal.

Any takeover of the LSE by an American institution would alarm some in the City.

Large UK investors worry that a takeover by any US group would expose them to tough American rules.

Sarbanes Oxley, the regulations that came into place after the collapse of Enron, are regarded in London as an insidious threat to effective trading.

Lawyers have argued that regulatory constraints could undermine the rationale for a US takeover of the LSE, since US rules might have to be extended to London-listed companies, driving some companies away.

It is understood that Nasdaq's terms would allow the LSE to remain regulated by the Financial Services Authority, with its own board.

Nasdaq, which specialises in technology stocks, approached the LSE with its 950p-a-share deal on Thursday night.

Just after the London market closed yesterday, the LSE revealed that it had received an offer, which it said "substantially undervalues the company".

Its shares had already climbed to 880p, an all-time high, from its opening price of 863.5p.

Nasdaq is likely to return, perhaps next week, with a hostile bid.

It has long courted the LSE, making occasional overtures since at least 2000.

Even a higher offer may not succeed, however.

One source said: "In the LSE's case, it isn't just about money.

It is about regulation and trading platforms."Nasdaq has been keen on a link-up with the LSE for several years.

Originally, it hoped to form an alliance and is known to have some admirers within LSE management.

As far back as 2000, it was openly pushing for what it described as "a logical potential partnership" with the LSE on the grounds that together they could become the dominant stock exchange in Europe and America.

Nasdaq, led by its chief executive Robert Greifeld, has said several times that it believes world stock markets need to consolidate in the interests of investors across the globe.

The NYSE has also insisted that it intends to play "a leadership role" in mergers within the industry.

Asked at the World Economic Forum in Davos last month whether he wanted to do a deal with London, NYSE's chief executive John Thain said: "I'm not discussing that with anyone."

The LSE was not aware of the extent of Nasdaq's intentions until now.

Last night it said that Nasdaq's bid was only an 8 per cent premium to the current share price.

LSE said the offer "undervalues the company, its unique position and the very significant synergies that would be achievable from the combination of the London Stock Exchange with any major exchange group".

The LSE almost seems to be saying that, at this point, it would rather merge with any stock market other than Nasdaq.

Its shares have rocketed in recent weeks on the back of speculation that a knockout bid was imminent.

It has faced near constant takeover talk since it made plans to merge with its German rival Deutsche Borse in 2000.

A hostile bid from Sweden's OM Gruppen swiftly followed but this too floundered on stiff City opposition.

Macquarie offered £1.5bn for the LSE, a 580p-a-share dealthat few investors took seriously.

Nasdaq, if it now goes forward with a hostile bid, must offer well above £10 to attract investors, analysts said.

Nasdaq's move appears calculated to steal a march on the NYSE, which is in the throes of its merger with Archipelago.

The NYSE began trading as a public company this week for the first time in its 213-year history.

Sources at the NYSE say Mr Thain has been positioning himself to scoop up one of the three major European exchanges.

Talks between Euronext and Deutsche Borse, though fraught, appear to be making progress.

Clara Furse, the LSE chief executive, has again seen her plans to grow the business thrown into turmoil by a bid battle.

She is being advised in her defence against Nasdaq by Merrill Lynch and Lehman Brothers.

- INDEPENDENT