LSE ups share buyback in battle vs Nasdaq bid

LONDON, Jan 18 (Reuters) The London Stock Exchange unveiled plans to return as much as another 250 million pounds (2 million) to investors as it seeks to persuade them to reject a hostile offer from U.S. rival Nasdaq.

The LSE also issued a bullish forecast for its SETS electronic trading system on Thursday, saying it expected the average number of trades per day on the platform to leap 180 percent to 480,000 in its 2008 financial year.

Europe's biggest stock market is battling a hostile 1,243-pence-a-share cash offer from Nasdaq, which already owns just under 30 percent of the London exchange operator. Nasdaq's bid values the LSE at 2.7 billion pounds.

''The board ... continues to recommend strongly that ...

shareholders reject Nasdaq's wholly inadequate offer,'' the LSE said in a circular to shareholders.

Bridgewell Securities analyst Katrina Preston said the new share buyback programme would be welcomed by investors but was unlikely to change anyone's mind.

''It was a rabbit they were expected to pull out of the hat,'' she said.

Analysts are divided over whether the LSE will succumb to Nasdaq's existing bid. Its shares are trading well above the current offer, signalling that some investors expect a higher bid, and U.S. investor Samuel Heyman has built up a stake of over 10 percent, largely above the Nasdaq offer price.

But short-term investors including hedge funds now own a big chunk of LSE shares and may prefer to take Nasdaq's existing offer if they feel the alternative is that the U.S. exchange will walk away.

At 0810 GMT, LSE shares were up 0.6 percent at 1,319 pence.

STRONG SETS Consolidation is picking up among the world's stock exchanges as they come under pressure from customers to offer global services and cut fees. Competition is also becoming more intense, with a group of investment banks planning to create a pan-European equity trading platform this year.

The LSE has long been viewed as a takeover target, in part because of its relatively small market capitalisation compared with rivals. Its shares have more than trebled over the past two years as it has received and rejected a string of offers.

The LSE operator has already returned cash to shareholders to head off a previous bid from Australia's Macquarie Bank.

Sources familiar with the matter told Reuters last week it was planning a further share buyback programme.

In response to growing competition, the LSE announced plans on Wednesday to cut tariffs.

''Today's revised SETS forecast, together with the recently announced tariff changes, support a compelling value creation story,'' Chief Executive Clara Furse said in the circular.

Bridgewell's Preston said the SETS volume forecast, if proved correct, would largely offset the impact on revenues from Wednesday's tariff cuts.

''Management remains confident of its ability to offset pricing pressure with volume increases, (however) we remain more sceptical,'' she wrote in a research note, keeping a ''neutral'' rating on LSE shares.

REUTERS CS HS1530