Stock Exchange is the quarry and Macquarie is the hunter

'If Macquarie is willing to pay 650p or 700p a share, then Euronext will have a real fight on its hands'

For a while, the prospects for an auction looked promising, with Deutsche Börse and the Dutch-French group Euronext both interested. But then the Germans dropped out, after a revolt by Deutsche Börse's shareholders, and the approach by Euronext, which has refused to indicate how much it is willing to pay, is being picked apart by the Competition Commission. Meanwhile, the LSE is back to insisting it doesn't want to be taken over.

Now, however, the latest twist in the drawn-out saga has been provided by Macquarie. The Australian investment bank indicated in August that it might be interested in the LSE, and last week it emerged it was talking to various potential bid partners and could make an offer within the next few days.

Under its well-respected founder, Allan Moss, Macquarie has enjoyed aggressive growth since it was founded in 1985, making money out of monopoly assets such as toll motorways and electricity suppliers, and earning itself the epithet "the millionaire factory". Growth had slowed recently but things are improving and forecasts were upped last week.

When it comes to the LSE, there are two factors in Macquarie's favour: no competition concerns and a reputation for paying top dollar. Sources say any bid is likely to be "substantial", which analysts are taking to mean close to the LSE's ideal take-out price of 700p a share. That would value it at £1.8bn, a far cry from Deutsche Börse's 530p indicative offer.

"Macquarie has been very aggressive, very entrepreneurial, very commercial, and has been very clever in creating funds that invest in certain areas," says Justin Bates, an analyst at Numis Securities. "It can afford to pay more than Euronext. If Macquarie is willing to pay 650p or 700p, then [Euronext] will have a real fight on its hands."

Yet the question remains, why would it want it in the first place? The group is better known for infrastructure than financial institutions - it runs the M6 toll road and Bristol airport in the UK - and owns no other exchanges.

"One answer could be that it is stupid - but it is definitely not," says one analyst. "So the other could be that it is looking to realise synergies somewhere else. Hong Kong's exchange is a listed company, it could be for sale. There's Australia, Singapore. And if you combine exchanges, you can make a lot of savings. So it could be the start of something bigger."

That theory also explains why Computershare's name cropped up as a possible bid partner. The Australian software firm has ruled itself out but analysts believe a business like Computershare could develop a new trading platform for the LSE - which could then be rolled out across a number of exchanges.

Macquarie's strategy is to buy up related assets and spin them off into listed funds, so it would not be unprecedented for the LSE to act as a trigger for a spending spree. That tactic, incidentally, largely explains the "millionaire factory" tag, as it allows Macquarie to extract fees at every stage of the process.

Meanwhile, with the Australians yanking the saga back into the spotlight, attention has also turned again to Euronext. Some are hopeful that a bid by Macquarie will force its hand and finally get it to start talking numbers.

Euronext may well not be happy with that version of events, however; the plan was to wait until after 7 November, when the Competition Commission is due to finish its probe. While some may argue that Euronext is playing a hard game by not indicating a bid level, it is thought that the owner of Liffe, the futures exchange, believes the LSE is mucking it around by not agreeing to talks.

No decision will be taken on how to react to Macquarie's move until the bank tables a bid. But confidence in the Euronext camp seems high, with some bullish talk of the LSE using it as a white knight to fend off Macquarie.

Certainly, Euronext has its advantages, specifically in the amount of synergies it believes it will be able to realise through a tie-up. But antitrust remedies could, potentially, eat into that, and there are also murmurings that some of its shareholders are reluctant to overpay.

So an auction will be the last thing Euronext wants, and not everyone is convinced the LSE will be after a white knight. "I'd be jumping for joy if I was an LSE shareholder," notes one analyst.

And bizarre a marriage as it may initially seem, Macquarie does appear to want its bride. The bank won't comment, but only last month, investment chief Nicholas Moore was quoted in the Australian Financial Review saying that the 200-year-old market was "not an unnatural business for us to look at", and arguing that it fitted the bank's preferred risk model. It is, of course, still searching for a bid partner, and if reports are to be believed, it has suffered a number of setbacks here.

But either way, and no matter what the LSE says, the battle is far from over.