Hedge funds forcing Nasdaq to lift LSE bid

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The Independent Online

Nasdaq suffered a blow yesterday after it emerged that hedge funds had been buying London Stock Exchange shares at prices significantly higher than its £12.43-a-share hostile takeover offer.

Cheyne Capital Management told the stock exchange that it had bought 2.279 million shares at 1,274.5p, amounting to a stake of just over 1 per cent. Cheyne made its purchase through contracts for difference, a type of derivative product often used by hedge funds.

Cheyne has been a phenomenally successful hedge fund operator and recently it emerged that its managers had shared a pay pot of £75m for just nine months' work.

GLG, which holds rights over 2.7 million shares, also said it had taken out long positions over 400,000 shares at £12.72 and £12.75.

The fact that hedge funds have been buying at prices higher than the "final" offer bodes ill for the Nasdaq. They will actively resist selling for a loss.

Nasdaq reserved the right to increase its offer - worth £2.7bn - if it could secure a recommendation from the LSE's board, which has so far flatly rejected its request to open talks, or if a counter-bidder emerges.

But yesterday sources close to Nasdaq played down the likelihood of this happening, saying that while there was "leeway" on issues such as board composition and roles for the LSE management, there was unlikely to be any move on price.

Hedge funds are believed to hold about 30 per cent of the LSE's shares, while a further 20 per cent are thought to be held by passive funds which track stock market indices.

The Office of Fair Trading said it was considering whether the bid warranted a referral to the Competition Commission.