Sign outside the LSE in the City of London. Photograph: Stefan Rousseau/PA
Yesterday Nasdaq dropped its £2.4bn bid for the London Stock Exchange, becoming the latest member of a small but steadily growing club of foreign companies that have tried and failed to buy the exchange, writes Charlotte Moore.
For the last 15 months, LSE's chief executive Clara Furse has had her hands full as one company after another has bid for the company. In December 2004 she rejected a £1.3bn bid from the Deutsche Börse, which backed out of the race the following March. In February 2005, Euronext, the pan-European exchange, made an indicative bid but did not follow through. Last December, the LSE rejected a £1.5bn bid made by the Australian bank Macquarie, which dropped its bid this February.
The LSE's steadily rising share price has been the key to the company staying independent. Each time a bid was made for the exchange, the share price continued to rise. Each would-be suitor decided to drop its bid rather than increase their offer to a level that would have been irresistible to LSE shareholders.
So why has the share price risen so consistently?
One reason is that the share price of a company will always rise when there is furious bid speculation. More importantly, however, has been the impact of the increasing number of hedge funds on the LSE's fortunes. Hedge funds are more active traders than traditional holders of equities, like pension funds. Exchanges make more money when there is a higher volume of shares traded so the LSE has seen its revenues and profitability boosted as the number of hedge funds has risen.
For US exchanges like Nasdaq and NYSE, the LSE is an increasingly desirable acquisition because of the rising burden of US financial regulation. Companies that want to list on a stock exchange are choosing London, with its lighter-touch rules, over New York. Buying the LSE means that the US exchanges would not miss out on these revenues.
There are those who argue that the most profitable venture would be a global equity exchange. It's a scale of economies argument - the more equities that are bought and sold over one trading platform, the higher the profits. As London is the second most active equity market in the world, a global platform would be impossible without owning the LSE.
For all of these reasons, it is likely that the battle for control of the LSE will run and run.
