LSE under pressure to find a partner before takeover bid

Nasdaq has been in the spotlight since the LSE pulled its £2.1bn bid for Toronto stock exchange operator TMX, leaving the LSE without a partner at a time of frenzied takeover activity among global exchanges.

“The LSE needs to do something, because as the other exchanges get bigger they get smaller, which can only lead to them being swallowed up,” said a senior trader at an international broker in London.

A source close to the firms said that Nasdaq – led by veteran Robert Greifeld – has not yet opened talks with the LSE, whose chief executive, Xavier Rolet, only took the helm at the centuries-old exchange in 2009.

But it could come under pressure to do so if shareholders approve Deutsche Boerse’s £6.2bn bid for NYSE Euronext this Thursday, opening the way for the creation of world’s top exchange group.

“The LSE is being marginalised, and if Deutsche Boerse/NYSE goes ahead, I wonder how much resistance the LSE will have to a bid,” said a managing director at a global investment bank.

Deutsche Boerse needs shareholder approval before it and its merger partner, NYSE Euronext, can turn their attention to European competition authorities, which are closely watching every move of the rapidly integrating industry.

Nasdaq tried to derail the Boerse/NYSE deal in April by launching a higher counterbid of £7bn for NYSE, prompting a rejection from Nasdaq’s hometown rival. But US regulators shot down the plan in May, fearing the merger would have given the combined group a monopoly.

That left Nasdaq on the sidelines, sparking speculation it might launch what would amount to the third bid for LSE in its history, after a Canadian consortium of banks and funds, known as the Maple Group, scuppered the LSE’s bid for TMX.

Nasdaq became the fifth firm to bid for the LSE in less than a decade in 2006, when it offered £9.50 a share, but the offer was immediately rejected. It then raised its bid to £12.43 a share in its second approach in November 2006, but the offer was again resisted by LSE’s bosses before being voted down in early 2007.

One large LSE shareholder said: “I think an approach is likely. Greifeld is an ambitious guy with a track record. I think there is pressure for some cross-border activity.”

There has been a swathe of exchange deals in the past six months.

“Exchanges need to consolidate to generate economies of scale and enable them to compete more aggressively,” said Andrew Bowley, managing director, head of electronic trading at Nomura.

The LSE and Nasdaq both declined to comment.