LSE in talks to find better offers

The London Stock Exchange admitted for the first time yesterday it is in talks about a possible merger while insisting it is undervalued despite dramatic increases in the share price.

A day after Nasdaq, the US hi-tech exchange, took a 15 per cent stake in the business, LSE revealed it is in "discussions with other major exchanges". This is thought to be a reference to informal talks with Euronext. Talks have also taken place with the New York Stock Exchange in recent weeks.

The statement was seen in the City as an attempt to generate an auction for one of the UK's most vital financial assets.

Nasdaq, which has seen its 950p-a-share offer rejected, paid £11.75 a share to get the 15 per cent stake on Tuesday. The acquisition is seen as a precursor to further share purchases. It is also a strategic move that will allow it a strong say in any other deals the LSE tries to strike.

LSE shares soared again yesterday, gaining 160p to 1,198.5p. At this level the exchange is worth £3.1bn.

LSE saw off a 580p-a-share offer from the Australian bank Macquarie earlier this year. Analysts do not think Nasdaq can afford to make another takeover bid at above £12 a share, although NYSE probably can.

Despite the extraordinary boom in the share price, LSE said yesterday: "The current share price does not fully reflect the shift in its growth prospects, its unique franchise or the strategic options available to it." One source said: "This is not the end game."

The LSE's chief executive Clara Furse will meet her counterpart at Nasdaq's Bob Greifeld soon to discuss possibilities. Nasdaq could make a hostile bid if LSE tries to accept an offer from a rival.