Euronext bows out as £2.4bn bid sets up US scrap for LSE

London market going west

Euronext, the Franco-Dutch group that has been stalking the London Stock Exchange for over a year, is to concede defeat in the face of US group Nasdaq's £2.4bn bid for the LSE.

Directors of the LSE are now pushing Clara Furse, the LSE chief executive, to open talks with Nasdaq as it has become clear that the London market will fall into American hands.

The New York Stock Exchange is talking with advisors about mounting a rival bid. It has just floated itself on its own market.

Because of the flotation, the NYSE was understood to be at least six weeks away from making a decision about whether it would bid for the LSE.

However, the NYSE's chief executive, John Thain, will have to accelerate that process. He is expected to enlist help from Goldman Sachs, which advised on the unsuccessful bid for the LSE by Australia's Macquarie Bank, which was dropped last month.

Euronext, which has come under pressure from its activist shareholders not to bid for the London exchange, has decided it cannot match the cash offer tabled by Nasdaq.

Euronext's chairman, Jean-Francois Theodore, will conclude that an all-share offer for the LSE could not succeed and Euronext is likely to signal it is walking away early this week.

Ironically, the Office of Fair Trading is expected to give a green light tomorrow to a Euronext bid for the LSE after accepting undertakings over the control that it exerts over the clearing and settlement business, LCH Clearnet.

Although the LSE rejected Nasdaq's 950p a share offer on Friday, which valued the group at £2.4bn, one of the LSE's largest shareholders, Scottish Windows, indicated the price was close to one it might accept. Another leading shareholder, Threadneedle, is also expected to press tomorrow for a deal at close to Nasdaq's 950p offer.

Analysts in New York said they expected that Nasdaq may have to put more money on the table, but excitement about the LSE bid sent Nasdaq shares up 10.2 per cent in trading on Friday.

The LSE has seen off bids by five different suitors in the last six years - including Deutsche Börse, OM of Sweden and a previous offer from Nasdaq. This has seen the share price rise from 450p last year to 880p before the Nasdaq offer was revealed.

Within the London market, the feeling is that Nasdaq may have dealt a near knockout blow. "I think we're in the endgame," said a source close to the LSE.