Qataris set sights on bigger slice of London exchange

The Qatar Investment Authority is understood to want to increase its stake in the London Stock Exchange, possibly by trying to buy the holding owned by its rival, the Dubai Borse. Sources close to the exchange say that Qatar, which owns a 14 per cent shareholding, is interested in picking up Dubai's 20 per cent stake, which it bought last year from Nasdaq after the US exchange's failed bid for the LSE.

LSE chairman Chris Gibson-Smith is close to the Qataris and was instrumental in bringing in the sovereign fund as an investor to help the exchange stabilise its shareholdings after the fraught Nasdaq bid. The Qatar Investment Authority, worth around £31bn, tried to buy Nasdaq's stake but was beaten to it by Dubai Borse, which, in a complex deal, ended up with a 19.9 per cent stake in Nasdaq, making it the biggest investor in two of the world's largest exchanges.

But the Qataris then stunned the market with a share-buying raid, snapping up 20 per cent at £16 a share, £2 above the price paid by Dubai to Nasdaq. Its stake is now diluted to 14 per cent following the merger with Borsa Italiana.

Now Qatar is said to be keen to raise its stake. Sources say it may even be contemplating a bid for the LSE, which is valued at £4.7bn. However, Dubai Borse, led by the Swede Per Larsson, is a more likely buyer of LSE shares than a seller. Mr Larsson, who as chief executive of the Swedish OMX exchange once bid for the LSE, is also known to be keen to expand Dubai's financial muscle and has London in his sights. Other big shareholders include Italy's Unitcredito, Intesa SanPaolo and France's Crédit Agricole, each with about 5 per cent.

Clara Furse, the LSE's chief executive, has now defended the exchange against five takeover bids in as many years. She has argued throughout that the LSE is worth at least £20 a share and that it will be a leader in the wave of consolidation taking place in the exchange world. Shares in the LSE, whose codename during take- over bids is David, had fallen to £17.42p on Friday after recent highs of £20.02p.

In another move, sources say there have been private talks between LSE advisers and the Bolsas y Mercados Espanoles, owner of the Madrid stock exchange, about a possible merger. One source said: "Both sides were interested in doing a deal but they failed at that stage because there were a number of obstacles. One was the price the Spanish bank shareholders wanted, and the other was the fear that integrating another exchange, so quickly after just having absorbed the Milan exchange, would be too onerous on the LSE."

The BME, which owns the Madrid, Barcelona, Bilbao and Valencia bour-ses, is the world's seventh-biggest equities exchange and Europe's fourth-biggest equity derivatives exchange. Its shares are €42, valuing it at £2.6bn. The BME also has €450m of cash.

One of Spain's top businessmen, Oscar Fanjul, chairman of energy giant Repsol, is on the LSE board alongside five Italians. A source said: "Adding Madrid to London still makes commercial sense. You never know, in these markets the talks may even be revived."

The LSE said there had been no formal talks at board level.