Analysis By Jon Cronin BBC News business reporter

London's stock exchange is regarded as a prise asset

The battle for control of the London Stock Exchange appears to be hotting up, amid reports that Australia's Macquarie Bank could be close to launching a takeover offer.

Dismissed in some quarters when it first revealed it was considering making a bid for the LSE, Macquarie is increasingly viewed as a serious contender for Europe's biggest stock market.

The Sydney-based investment bank is building up support for a possible takeover, a move that would also upset efforts by pan-European exchange Euronext to acquire the LSE.

The owner of the Paris, Brussels, Amsterdam and Lisbon stock markets has been patiently pursuing the London exchange for some time.

It was considered the best placed suitor after a formal offer from Germany's Deutsche Boerse fell apart acrimoniously in March.

Shrewd play

Euronext is currently awaiting the outcome of a UK Competition Commission probe into a possible takeover of the LSE, due in early November.

MACQUARIE BANK: KEY FACTS Largest investment bank in Australia Pre-tax profits 2004/05: 1.1bn Australian dollars (�495m; $880m) Employs 6,500-plus staff Set up by UK firm Hill Samuel Became Macquarie Bank in 1985 Operates in 21 countries UK interests include M6 toll road and BBC Broadcast

It has so far declined to put a price on any offer.

But the arrival of an antipodean interloper in waters it generally regards as its own could spur other exchanges to make rival bids, forcing Euronext to put its own cards on the table.

Sweden's OMX Group, which failed to win control of the LSE four years ago, is also rumoured to be considering making a second offer.

"I think Macquarie will get it. I think that they can probably afford to pay more than Euronext," says Justin Bates, an analyst with UK brokers Numis Securities.

"Euronext have played it shrewdly. They've refused to put a price on an offer, but they're are going to have to be quite smart to get their hands on the LSE now."

'Tasty morsel'

On paper, at least, Macquarie appears a curious potential suitor for the LSE.

The LSE is in a strong position - they could be justified in demanding between 650 pence and 700 pence a share Justin Bates, Numis Securities. Check LSE shares

As Australia's largest investment bank, it is known as the "millionaires factory" because of the hefty bonuses it has paid.

But the company has little experience in running stock exchanges.

Its involvement in the UK has so far included investments in the M6 toll road and technical services company BBC Broadcast.

However, analysts point to Macquarie's taste for acquiring businesses which operate as a monopoly and have a strong cash flow.

"The LSE is a tasty morsel," says Mr Bates. "It's a monopoly, it has a fantastic reputation, it's very profitable and there's tremendous scope to extend its reach."

Competition worries

The struggle for control for the LSE has already left victims in its wake.

In March, Deutsche Boerse was forced to withdraw a �1.3bn ($2.5bn) takeover bid in the face of widespread opposition from its own shareholders. The failure of the Frankfurt exchange's 530 pence per share offer eventually led to the resignation of its chief executive Werner Seifert.

The LSE's boss may find herself at the centre of a bidding war

Euronext, too, faces stiff challenges in its bid to add London to its ranks.

In July, the Competition Commission said a takeover of the LSE by either Euronext or Deutsche Boerse would "substantially lessen competition", as it would leave the buyer in control of the LSE's clearing services.

Euronext's recent acquisition of the London-based international derivatives market Liffe could also count against it.

And analysts believe that, as with Deutsche Boerse, some influential Euronext shareholders may take the view that the price required to win control of the LSE will be too high.

"The LSE is in a strong position," says Mr Bates. "They could be justified in demanding between 650 pence and 700 pence a share."

'Good momentum'

For its part, the LSE maintains that it can remain a profitable and independent company.

Last month, the exchange gave an upbeat assessment of its performance. In the five months to the end of August, it saw its best period for new share issue activity in more than three years.

"We have continued to see good momentum in all core business areas," LSE chief executive Clara Furse said.

But the exchange's inability to capitalise more effectively on its dominant position has frustrated some observers.

Plans to forge an alliance with Deutsche Boerse were foiled in 2001, while the LSE lost out to Euronext in its own backyard in its battle for control of Liffe.

Despite its talk of independence, many analysts believe that the LSE is holding out for a takeover deal closer to 700 pence a share, valuing the firm at �1.8bn.