LSE Stocks Leap After Nasdaq Buy

Shares in the London Stock Exchange soared today after the New York-based Nasdaq stock exchange bought a 15% stake in the company.

The surprise purchase put the US technology exchange in prime position to take over its 300-year-old London rival. The LSE has been approached by several suitors in past months - Euronext, Deutsche BoÜrse and the Australian investment bank Macquarie amid intensifying competition among exchanges to attract companies.

Nasdaq, where technology icons such as Microsoft are listed, made a £2.4bn bid two weeks ago that the LSE rejected as too low.

The LSE is particularly attractive to Nasdaq as companies are increasingly reluctant to list their shares in the US, following new compliance rules introduced after the Enron and WorldCom debacles.

Companies see such rules as too bureaucratic and burdensome, and the LSE is the obvious alternative to a US listing. Even if Nasdaq decides against a takeover of the LSE, it would make a tidy profit should another bidder step in.

"This move could discourage Euronext from making a bid for LSE (and) give Nasdaq a headstart if it were to enter a bidding war with Euronext. It may help get LSE management to the negotiating table," said Michael Long, an analyst with Keefe, Bruyette & Woods. "Nasdaq could walk away with a good profit if Euronext did acquire LSE."

With its surprise move yesterday, Nasdaq bought over 35.4m LSE shares from Threadneedle Asset Management - until then the LSE's largest institutional shareholder - as well as a further 2.7m shares elsewhere to give it a 14.99% stake.

The decision to sell its stake marked a change for Threadneedle, which has been a big backer of the LSE's desire to stay independent. The company today confirmed the sale of virtually of its entire holding - 13.8% - in the LSE.

Michael Taylor, the head of equities at Threadneedle Investments, said: "We continue to believe that the LSE is the world's most successful cash equity trading platform operating in the world's most successful financial centre and are pleased to see this value recognised by the market."

Threadneedle held 35,276,945 ordinary shares of the LSE on behalf of clients. It currently holds less than 1%.

In lunchtime trading, LSE shares were up 15% at 1,194p amid speculation that Euronext or Nasdaq's arch-rival New York Stock Exchange may step in with bids.