Nasdaq makes $5.1 bln bid for London Stock Exchange

LONDON, Nov 20 (Reuters) U.S. stock exchange Nasdaq launched a 2.7 billion pound (.1 billion) offer for the London Stock Exchange on Monday to create a trans-Atlantic market, but the bid was rejected as inadequate.

Nasdaq said the deal would create the world's biggest exchange by number of listings, including over 6,400 companies with a market value of .8 trillion, as well as the most active exchange with an average daily volume of 7.4 billion shares traded.

Nasdaq, which had built up a 25 percent stake after a previous bid was rebuffed, said it was offering 1,243 pence a share in cash for the rest of the company, Europe's biggest stock market.

The second-biggest U.S. stock exchange also said it had increased its stake to 28.75 percent by buying a further 7 million LSE shares at 1,243 pence apiece, at a cost of 87.8 million pounds, strengthening its hand against any possible counter-bid.

The LSE rejected Nasdaq's latest offer, its second since March.

''Nasdaq's final offer fails to recognise the outstanding growth record and prospects of our group on a standalone basis let alone the Exchange's unique global position,'' chief executive Clara Furse said in a statement.

The move comes as the world's stock markets are rushing to consolidate, under pressure from customers to cut fees and offer global services, and a group of banks added to the pressure last week by announcing plans to create their own pan-European equity trading platform next year.

Competition between established exchanges and alternative platforms will be made possible by the European Union's Markets in Financial Instruments Directive (MiFID), which comes into effect next year.

''The banks' initiative has undermined the LSE's value and Nasdaq is using this weakness to strike a deal,'' said one analyst who declined to be named.

Shares in the LSE were up 6.2 percent at 1,293 pence in midday trade, valuing it at around 3.2 billion pounds.

Dealers said the shares were rising on expectations that the LSE may find a 'white knight' to rival Nasdaq's offer or that the LSE board may agree to a higher offer now that increased competition to its exchange is on the cards.

''Clara Furse (the LSE's Chief Executive) will be rushing around to find a white knight, maybe OMX or Deutsche Boerse. Or maybe the board will agree to a higher offer, say around 1,300 pence,'' said one senior dealer in London.

The LSE declined to comment, but is expected to release a statement via the Regulatory News Service later on Monday.

TRANS-ATLANTIC RACE The race has been on to create the first trans-Atlantic stock exchange. Both Nasdaq and archrival NYSE Group Inc., the world's largest stock exchange, have been pushing for overseas expansion in an effort to boost their product offerings and geographical reach in an increasingly competitive and commoditized industry.

While Nasdaq has been building its stake in the LSE, NYSE has been pursuing Paris-based exchange Euronext, a deal it struck earlier this year which is awaiting shareholder approval.

A source familiar with the matter said Nasdaq took advantage of recent falls in the LSE's valuation to make an offer today.

The source added that the New York-based exchange decided against waiting until April, when it could have bid less, because this would have seen it fall behind rivals such as NYSE in the current wave of exchange consolidation.

Under UK takeover rules Nasdaq has to pay at least 1,243 pence per LSE shares until the offer expires in April.

Nasdaq's new bid is 40 percent above its previous offer in March, but close to the level at which the second biggest U.S.

stock market paid for most of its stake.

UK Treasury minister Ed Balls said Britain will not stand in the way of Nasdaq's bid.

Nasdaq's Chief Executive Bob Greifeld said the combined enterprise will have a breadth of products to compete effectively with any threat from the banks.

''We've always operated in a competitive environment. The fact that you will have competition in the London market is something we respect,'' Greifeld told journalists on a conference call.

The LSE has long been viewed as a takeover target because it is a relatively small company, compared with many of its rivals which have branched into other trading platforms. However, the firm has rejected approaches from all of its suitors to date.

''Given that the (LSE) shares were trading above 1300 pence in the middle of last week, we expect the exchange will reject this renewed advance,'' said Bridegwell Securities analyst Katrina Preston.

Nasdaq said it would retain the LSE brand and that the London exchange would continue to be regulated solely by the UK's Financial Services Authority.

REUTERS SBA DB2045