Hedge funds have increased their holdings in the London Stock Exchange in the past week at prices that show they anticipate a higher offer from Nasdaq or another buyer before a deal is consummated.
DE Shaw, Halcyon Asset Management, and Chesapeake Partners Management have all increased their holdings in the LSE at prices above the £11.75 Nasdaq paid Threadneedle Investments and Scottish Widows when it bought a 15 per cent stake in the LSE last week.
In a regulatory filing, DE Shaw said it had increased its holding to 3.73 per cent from 3.36 per cent through the purchase of 910,000 swaps and swaps on call options at £11.84. Halcyon increased its holding to 1.95 per cent from 1.21 per cent with the purchase of 1.88m contracts for differences at £11.86. Chesapeake, new to the LSE story, took a 1.11 per cent stake on 12 April by buying 845,000 CFDs, also at £11.86.
These three hedge funds alone now control nearly 7 per cent of the LSE, with the total held by hedge funds seen around 20 per cent.
“Starting Tuesday, Nasdaq will be able to start to increase its holding to 30 per cent, and if it does that, it will then have to make a mandatory offer at at least the highest price it has paid in the market – that makes hedge funds take notice and evaluate what some see as the increasing likelihood of another bid from Nasdaq or possibly the NYSE,” said one hedge fund manager.
Other hedge funds have kept their holdings close to where they stood prior to Nasdaq increasing its stake. As of late March, Lazard Asset Management had 1.01 per cent of LSE shares, while Eton Park International had 1.3 per cent. Lansdowne Partners still has options on 3.8m shares, about 1.5 per cent of the company.
After selling part of its LSE holding to Nasdaq last week, Scottish Widows still has 4.3 per cent and may be prepared to sell more, particularly with willing hedge funds in the market. LSE’s shares closed on Friday at £12.32.
Little more than a year has passed since Deutsche Börse’s plans to buy the LSE for less than half the £11.75 price Nasdaq paid for shares last week – a move that unleashed a shareholder revolt
A bid for the LSE at £11.75 per share would yield a return on investment of less than 7 per cent for Nasdaq, even with liberal assumptions about synergies, analysts at Fox-Pitt, Kelton believe.