Takeover fever at the London Stock Exchange after TMX embarrassment

Shares in the London Stock Exchange surged yesterday in the wake of the dramatic collapse on Wednesday of its merger with Canada's TMX on expectations that it would become a takeover target.

The stock rose 11 per cent to 1,061p, valuing the LSE at £2.9bn, as the market speculated that the group would become a takeover target. The management were yesterday considering the most suitable strategy, and it is understood that alternative deals have not been ruled out. Clive Furness, the managing director of Contango Markets, an exchange consultancy, said: "It was a blow, but these are not single-strategy individuals. I'm sure it is not the only thing they have got on the go."

The LSE was forced to pull out of the merger with TMX late on Wednesday after it became clear the deal did not have enough shareholder support. The move caused furious speculation over the future of the exchange. One stock market expert said: "The situation has flipped from the LSE being the protagonist to it being the potential target."

James Hamilton, an analyst at Numis Securities, added: "There's a feeling in the market that the company could be the focus of a bid." Nasdaq failed with two attempts to buy its London rival in 2006 and 2007 and is widely expected to make a third attempt.

Others suggested it should merge with the Hong Kong or the Tokyo stock exchange. UBS analysts said Nasdaq could offer up to 1,150p, a 22 per cent premium to the present share price.

Mr Furness said the group would be a "fantastic asset" for a potential bidder, before adding: "The LSE has ambition and they will find other avenues. Xavier Rolet [LSE's chief executive] has been hampered by his predecessor's inability to deliver."

Peter Randall, the chief executive of electronic trading platform Equiduct, said: "This is not necessarily curtains, but the LSE is in a tough position. It has a great brand, but is finding it tough to expand. It is a right-hand drive car in a left-hand drive world." He added: "They should hunker down and ride this one out."