Nasdaq's New Wrinkle

A hedge fund complicates the LSE picture.
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The

Nasdaq Stock Market

I:IXIC

may be facing a new obstacle in its effort to gain control over the London Stock Exchange.

Samuel Heyman, the 1980s corporate raider, now owns an 8.8% stake in the London bourse through derivatives trades carried out by two hedge funds he controls, according to a U.K. regulatory filing. Heyman's move into the London exchange could make it far more costly for Nasdaq to pull off its takeover plan.

But it's anybody's guess just how the battle for the LSE will shake out now that Heyman has emerged as another force the Nasdaq must reckon with, in addition to the London officials who oppose its $5.1 million bid.

It's possible Heyman will pressure the LSE board to begin discussions with the Nasdaq. But it's just as likely that Heyman's involvement will draw other yield-hungry hedge funds into the LSE -- a move that could make it too costly for the U.S. tech-heavy exchange to complete the deal without paying a hefty premium.

Shares of Nasdaq surged on Wednesday, up $2.29, or 6%, to $40.61. But market sources attributed the rise to a number of market factors, not just the news of the Heyman LSE stock purchase. Shares of

NYSE

(NYX)

, the parent company of the New York Stock Exchange rose, $4.35, or 4.2%, to $108.90.

On Monday, Nasdaq submitted its "final offer" for the LSE. But just at it did earlier this year, the London exchange rejected the offer along with a request to discuss the terms. Nasdaq's offer, which had been anticipated, came eight months after it made an unsolicited $4.2 billion bid for the London exchange.

Ever since, Nasdaq has been snatching up large blocks of the LSE's stock in an attempt to position itself for another takeover bid. It acquired a so-called blocking stake, which puts it in the position of rejecting bids from other suitors. Its current equity stake in the LSE is just under 29%.

In light of the LSE's refusal to even talk about a deal, Nasdaq's game plan is to simply keep acquiring shares of the London exchange until it can gain effective control over its board. But that's not a quick strategy, and some worry that the Nasdaq may be too focused on the London at the expense of other merger partners.

Given that slow path to consolidation, some on Wall Street say Heyman's involvement could be the best thing to happen to the Nasdaq. Rich Herr, an analyst at Keefe Bruyette & Woods, says Heyman's move might expert pressure on the LSE and get them "thinking about these offers that have come their way."

An official with Heyman's fund declined to comment.

Josh Elving, an analyst at Piper Jaffray, agrees that LSE's management might be more willing to talk to the Nasdaq now, since hedge funds typically have short-term profits in mind. But, Elving cautions, the investment could also block the Nasdaq in attempting to gain control of the board.

"That's 8% of the stock they don't have," he says.

No matter what, it's clear the price of taking out the LSE has just gone up. But due to the vagaries of British law, the Nasdaq cannot make a higher offer for the LSE unless there is a competing bid for the exchange, or the LSE's board agrees to discuss the terms.