Nasdaq Stock Market Inc. (NDAQ) shrugged off a swift rejection of its $5.1 billion bid to take over the London Stock Exchange Monday, saying it will make its offer directly to stockholders until the LSE board agrees to negotiate a deal.

The London exchange, which has fought off a string of suitors, said Nasdaq substantially undervalued the company with a cash offer of 1243 pence, or $23.56, per share for the more than 70 percent of shares the Nasdaq doesn't already own. The offer values the LSE at 2.7 billion pounds, or $5.1 billion.

Trading in LSE shares, which closed at 1274.91 pence, or $24.17 Monday, suggested Nasdaq would have to pay more in order to succeed with its bid.

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"This is a long game that we're playing, and I'm optimistic we'll engage with the London Stock Exchange board in a relatively short period of time," Nasdaq Chief Executive Robert Greifeld told analysts after the rejection. "As the process moves along, the likelihood we'll engage with the board increases day by day."

Analysts said shareholders have to consider the London exchange's ability to compete if the New York Stock Exchange (NYX) completes its takeover of Euronext NV, which operates exchanges in Paris, Brussels, Lisbon and Amsterdam, and if seven big investment banks go ahead with their plans to set up a rival exchange in Europe.

Nasdaq's offer represents a premium of 54 percent over LSE's closing share price March 10, the day before the LSE said it had received an offer, and was the minimum bid the U.S. exchange could make under British takeover rules.

"We believe Nasdaq's final offer fails to recognize the outstanding growth record and prospects of our group on a standalone basis let alone the Exchange's unique global position," said Clara Furse, chief executive of the London Stock Exchange.

Nasdaq followed up its offer by buying another 7 million LSE shares, raising its stake from 25.1 percent to 28.75 percent of LSE shares. Scottish Widows Investment Partners, a subsidiary of Lloyds TSB which previously sold 10 million LSE shares to Nasdaq, said Monday's sale was on behalf of an unidentified client.

Nasdaq cannot acquire more than 30 percent of the LSE for another 30 days because of UK takeover laws. After that point, once Nasdaq gains more than 50 percent it would be able to control the LSE board.

Greifeld argued that the offer was "full, final and fair" and added that he wanted the approval of the LSE board, but left open the possibility of a higher offer if a rival suitor emerged.

Keith Baird, an analyst at Fortis Private Investment Management in London, said Nasdaq had offered less than the market wanted. "The word was that the hedge funds which hold a significant minority of shares wanted 1300 pence," Baird said.

That price would probably win the day, Baird said, but for now, "I think if I had the shares, I would obviously hold on."

Nasdaq said its bid would be financed through cash reserves, borrowing and by issuing preferred stock, but gave no details.

Moody's Investors Service put Nasdaq on review for downgrade, suspecting that the deal would largely be financed by debt.

"Should the transaction go through, the significant financial leverage will leave Nasdaq little room for error," said Moody's Senior Vice President Peter Nerby. "Execution and rapid de-levering will be key"

A Nasdaq-LSE combination would create the world's largest equity market by value of listed companies, Nasdaq said, with more than 6,400 quoted companies with a total value of about $11.3 trillion.

The London Stock Exchange, Europe's oldest bourse, now takes about half the initial public offerings in Europe including many flotations of Russian and Eastern European companies.

Earlier this month, the LSE reported first-half net profit more than doubled to 54.1 million pounds, or $103.2 million, as electronic trading increased 56 percent and income from initial public offerings rose.

"In the year to October, the exchange has underlined its position as the world's primary listing venue with 22.3 billion pounds ($45.3 billion) raised through IPOs, 96 percent more than the same period in 2005 and more than any other exchange so far this year," the LSE in rejecting the Nasdaq bid.

Still, Fox-Pitt Kelton analyst Andrew Mitchell said the bid was shrewdly timed following last week's slump in the share price below 13 pounds, and that it would be "difficult for London to defend itself."

Earlier this year, Nasdaq made an offer of 9.50 pounds per share for the LSE, but abruptly withdrew it in March. Australia's Macquarie Bank Ltd., Germany's Deutsche Bourse AG and Sweden's OM Gruppen have also all failed in previous overtures to take over Europe's oldest exchange.

Mitchell said Nasdaq has no obvious rivals this time around.

"Deutsche Boerse attempted before at a much lower level and you can't rule them out entirely, but they are an unlikely candidate," he said.

Niclas Lilja, a spokesman for Sweden's OMX, which has previously bid for the LSE, declined to comment on the Nasdaq offer.

"We can comment on our own exchange, not others," he said.

A spokesman for Deutsche Boerse also declined to comment.

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