Exchange rejects Nasdaq's raised £2.7bn bid

The London Stock Exchange prepared itself yesterday for another takeover battle after strongly rejecting its fifth bid in less than two years.

LSE's chief executive, Clara Furse, said the £2.7bn "final" offer from America's Nasdaq, worth £2.9bn when the exchange's debt is taken into account, "fails to recognise the outstanding growth record and prospects of our group on a standalone basis, let alone the exchange's unique global position". She also flatly refused the Nasdaq's offer of talks.

The LSE shares promptly surged, finishing the day up 73p at £12.91, showing that investors believe the Nasdaq will have to pay more. The American exchange, however, said it would only consider increasing the price in the event of a counter-bid or a board recommendation from the London exchange.

It sought to increase the pressure on the LSE's board by launching a fresh raid on its shares, buying 7 million at £12.43, taking its stake to 28.75 per cent.

Scottish Widows, a long-time investor in the LSE, admitted it had sold 7 million shares. The fund manager is thought to have nearly doubled the value of its investment because it started buying at less than £6. Widows now holds just 348,000 LSE shares on behalf of its clients.

Because Nasdaq has paid £12.43 for the shares in the open market, it has to offer other investors at least as much as that in a takeover. Yesterday's offer is 30 per cent higher than the company's first 940p offer in March.

Nasdaq's chief executive, Bob Greifeld, called his bid "fully priced" but did not rule out taking it direct to shareholders. He said he hoped they would persuade Mrs Furse to the negotiating table.

He also sought to curry favour with stockbrokers by holding out the prospect of a three-year price freeze on what they pay the exchange for trading.

Nasdaq acted after the sharp fall in the LSE's share price caused by the announcement of the launch of a major competitor by seven of the City's biggest investment banks last week. "Project Turquoise" aims to create a pan-European share trading platform that will sharply cut the price of trading in the Continent's biggest stocks, potentially eating into the LSE's business.

Both Nasdaq and the LSE also face a serious competitive challenge from the merger of the New York Stock Exchange with Paris-based Euronext.

But a merger between the two would create the world's biggest exchange by number of listed companies, with more than 6,400 capitalised at $11.8 trillion. It would also be the most active by trading volume, with 7.4 billion shares changing hands each day.

Analysts were divided on the bid's chances. Katrina Preston, from Bridgewell Securities, said she suspected the exchange's board would only be prepared to recommend an offer in the region of £15.00 and said the rejection "makes sense".

But others were more supportive of Nasdaq. James Hamilton at Numis Securities said the LSE should "take the money", saying the offer was still double what the exchange's share price was worth a year ago.

The exchange's rejection of the offer was backed by London mayor Ken Livingstone, who called it "anti-competitive" and "against the interests of London".

He added: "London's financial and business services have boomed over the last decade not only because they have been able to escape excessively rigid regulatory control, such as the US Sarbanes-Oxley Act, but because they have positively invested in innovatory products, for example the huge success of AIM."

Six years, seven bids, four suitors but still no marriage

May 2000: Deutsche Börse proposes all-share merger with London Stock Exchange to create new company called IX

August 2000: Sweden's OM offers £802m for the LSE

September 2000: IX merger proposal abandoned

July 2001: LSE floats on the LSE at 385p-a-share, valuing it at £822m

December 2004: Deutsche Börse bids 530p-a-share or £1.3bn. Euronext also announces proposed bid, but no price

March 2005: Deutsche Börse withdraws offer

December 2005: Australia's Macquarie bids 580p or £1.5bn

February 2006: Macquarie drops bid

10 March: Nasdaq makes first offer of 950p-a-share worth £2.1bn

30 March: Nasdaq drops bid

November: Nasdaq second offer worth 1,243p per share, or £2.7bn