THE City does not like overt displays of arrogance, and when someone comes in with a final offer in an attempt to short-circuit a takeover process, it amounts to that.

Bob Greifeld, chief executive of Nasdaq, made that mistake last week. He waded in with a takeover bid for the London Stock Exchange, in which he is already a 29% shareholder. He said the £2.7 billion offer — pitched at £12.43 a share — could only be increased if a rival bidder emerged or he received board recommendation. Precedent says he will struggle to pull it off; over the past three decades, the City’s deal almanac is full of cases where final offers have been given short shrift.

Shares in the London exchange finished the week at £13.21, suggesting the market is confident a rival suitor (or solution) will emerge. It is early days, but Greifeld may have underestimated the situation.

He is adamant his offer, which values the LSE on a mid-20s-plus multiple, is as high as he can go. This says more about Greifeld’s financial handcuffs. He is already raising a $5 billion (£2.6 billion) facility to finance the takeover — of which $750m is for existing Nasdaq debt. And after the proposed deal he then needs investors to support a secondary offer to raise between $1 billion and $2 billion to reduce that debt mountain.

Neither is he paying full price. The LSE has one of the highest growth prospects among world exchanges, yet against 2008 profit forecasts it equates to only 20 times earnings. This is considerably cheaper than the 25 multiple the New York Stock Exchange is paying for Euronext, a rival pan-European exchange.

Greifeld’s best argument is cost: that a combined exchange would be considerably cheaper for users than at present, and that must be welcomed.

It is considerably cheaper to trade shares at Nasdaq than at the LSE, and at a time when a group of London-based investment banks are hopping mad about LSE trading prices that is a welcome bullet. But part of the explanation behind the cost difference is that Nasdaq is largely retail while the LSE is wholesale.

Clara Furse, the LSE’s chief executive, is addressing the cost issue and intends to unveil a series of further cuts; whether it is sufficient to fend off the rival low-cost exchange planned by the investment banks remains to be seen. But even if it wasn’t it would take at least 18 months to set up — and when it was, it would be riddled with internal conflicts.

Nobody can blame Greifeld for having a go. In his short time at Nasdaq he has had great success taking market share from the larger New York Stock Exchange.

But Furse and her shareholders will not be bullied into a deal. It would not be surprising if Furse had friendly investors prepared to buy out Nasdaq’s stake at £12.43 a share, should its offer lapse.

Just because Greifeld is flashing the cash, there is simply no need for the LSE to sell. It is a unique asset positioned in a capital that is becoming the world’s biggest financial centre.

That does not mean Furse has to bang a jingoistic drum and remain independent, but she can pick her own deal and ensure that the LSE and its investors have a greater ongoing role in an enlarged transatlantic exchange. There is a price when a deal becomes irresistible, but the one on the table is not it.

Takeover talk

AT a recent lunch with one of Britain’s private-equity champions, I was told the next wave of large buy-outs would happen on the Continent.

With the odd exception, the Continent has been a relatively deal-free zone over the past year. Most of the corporates have kept private equity busy by spinning off assets such as Linde’s forklift division, Philips’ semiconductor business and Unilever’s frozen-food arm.

But in a fascinating piece of research called Where are all the LBOs? Barnaby Martin and Teo Lasarte at Merrill Lynch have ranked potential targets that are generating the internal rates of return (IRR) that would fit a private-equity model.

At the top is Vivendi Universal, which has already received and rejected two proposals from KKR and Permira. According to Merrill, this media group has a four-year IRR of 29%. Next is Michelin, with a 28% IRR over the same period; third is Greek telecoms giant OTE with 24%, followed by Reuters with 22%; and then Continental (a German tyre company) with 20%, where the management have already expressed interest in a leveraged buy-out. Henkel and Publicis are next with 19%, but the former company has a large family holding. The others at 15% are Thomson, J Sainsbury, Havas and Sodexho. The attraction of these large companies is they have high cost bases to attack and under-leveraged assets.

And, as my lunch partner pointed out, many of them still operate in the 12pm to 3pm culture. Not surprisingly my companion arrived at 1pm and left at 2pm.

Homing in

AS my colleague Jenny Davey reports on the front page, the next round of consolidation in the housebuilding sector looks to be in full swing. A few weeks ago a consortium led by Sir Tom Hunter tabled a bid for Crest Nicholson, and now it is the turn of Wilson Bowden, which has received an approach from Wimpey. It came just weeks after the battle for McCarthy & Stone erupted.

In terms of house-price growth, Britain must be at the high-water mark. But with an industry that is only building 170,000 homes a year, the hope is that prices will remain stable. However, one by one, the housebuilding entrepreneurs that have characterised the industry are selling up. In this case it is Wilson Bowden’s founder David Wilson — and it is always worth following the smart money.