Nasdaq launches $5.3 bln hostile bid for LSE

LONDON/NEW YORK, Dec 13 (Reuters) Nasdaq launched a 2.7-billion-pound (.3-billion) hostile bid for the London Stock Exchange needing just over a fifth of LSE shareholders to accept for it to take control.

The largest U.S. electronic stock exchange is appealing directly to LSE investors with a 1,243-pence-per-share bid after being spurned twice in the past nine months by Europe's biggest stock market.

Nasdaq shares slipped 55 cents, or 1.5 percent, to .75.

Nasdaq Stock Markets Inc., which already owns 28.75 percent of London Stock Exchange Plc, has lowered the level of shareholders it needs to agree to its bid to 50 percent from 90 percent, leaving just 21.3 percent of LSE investors required to vote in favour of the offer before Nasdaq can take control.

Nasdaq Chief Executive Robert Greifeld said it ''represents a full and fair value for LSE shareholders, taking into account both the successes of the business but also the new competitive threats which the LSE will face in 2007 and beyond.'' The LSE reiterated in a statement its rejection of the bid, which it said ''substantially undervalues the exchange and fails to reflect its unique strategic position and the powerful earnings and operational momentum of the business.'' The U.S. exchange said it was seeking acceptances from LSE shareholders by Jan. 11.

''We believe ultimately they will be successful,'' said Keefe, Bruyette&Woods analyst Richard Herr. ''Getting to 90 percent seemed difficult, but 50 percent may be sufficient to eventually acquire the company.'' ''No other bidders are emerging for LSE in our view so this is not a competitive bidding situation,'' Herr added. ''Nasdaq is the exit here.'' Under British takeover rules, Nasdaq can raise its offer under two conditions: if the LSE board recommends the bid to shareholders, or if a rival bidder comes forward.

With Nasdaq formally launching its offer, the LSE has until Dec.

26 to put out its initial defense points under UK takeover law, and until Jan. 20 to announce its full defense.

Nasdaq then has until Jan. 27 to make final changes to its offer, though it has limited its legal ability to change it by describing it as ''full and final.'' ''I don't think (LSE) is in negotiating mode right now,'' said Fox-Pitt, Kelton analyst Edward Ditmire. ''They will probably lay out a stand-alone alternative, which they'll explain is of superior value to the 1,243 bid.'' But signaling that they may accept a higher price would indicate a lack of commitment by LSE management to any stand-alone strategy, benefiting Nasdaq by reducing LSE shareholders' incentive to hold out for a better bid, he said.

''The offer is not the kind that blows people away, but the hurdle is not very high,'' Ditmire said. ''I wouldn't be surprised if it went through.'' RUNNING OUT OF OPTIONS? Analysts believe the LSE may be running out of options after British financial markets broker ICAP Plc decided not to try to revive merger talks.

Hedge fund investors, led by Samuel Heyman, have bought stakes in the LSE through the derivatives market at a premium to Nasdaq's offer on speculation the bid would be sweetened.

A source familiar with the matter said now that the offer document was out, those hedge funds were likely to begin a dialogue with Nasdaq over its bid.

LSE shares have more than tripled in value in the past two years amid persistent bid speculation. They were flat at 1,320p on Tuesday, indicating investors still hope for a higher bid.

But past suitors Deutsche Boerse and Australia's Macquarie Bank were only interested when LSE traded at much lower levels, while NYSE Group Inc. is pursuing a merger with pan-European exchange Euronext.

The world's stock markets are under pressure from customers who want lower fees and broader offerings. A competitive threat to established bourses is also coming from their investment banking clients, a group of which last month said they plan to create a new pan-European equity trading platform next year.

Citigroup Inc., Credit Suisse, Deutsche Bank, Goldman Sachs Group Inc., Merrill Lynch&Co., Morgan Stanley and UBS said they would form a new company to develop the platform.

REUTERS DKS PM0414