USA: NASDAQ makes a bid for the London Stock Exchange and New Yorkers react to the implications of the offer

Nasdaq Stock Market Inc. made a 2.7 billion pound ($5.1 billion) offer for the London Stock Exchange on Monday (November 20) to create a trans-Atlantic market, but it was quickly rejected as inadequate. Nasdaq said the deal would create the world's largest exchange by number of listings, over 6,400 companies with a market value of $11.8 trillion, and the most active exchange with average daily volume of 7.4 billion shares traded. This was Nasdaq's second offer since March. LSE shares rose 6 percent after the news. Nasdaq, which on Monday increased its LSE stake to 28.75 percent, said it would pay 1,243 pence per share in cash for the rest of the LSE, Europe's biggest stock market. The LSE rejected Nasdaq's offer within seven hours. The move comes as the world's stock markets rush to consolidate, pushed by customers who want lower fees and broader offerings. Last week a group of the world's largest securities dealers announced plans to create a rival European equity trading platform, adding to the pressure. Said Professor Merritt B. Fox, of Columbia University's School of Law in New York, "I think that the Nasdaq bid is motivated in part by the New York Stock Exchange proposed, and presumably completable combination with Euronext. So that is certainly a factor, a fear that Nasdaq will be left behind in a world in which there are trans-Atlantic markets." The reaction on Wall Street was positive. With the October announcement that the Chicago Mercantile Exchange (CME) was buying the Chicago Board of Trade (CBOT) for U.S. $8 billion, the two largest U.S. futures exchanges will combine to form a powerful force. Scott Soracoe, who is an energy analyst for Deutsche Bank said that the Nasdaq bid could bring changes to the NYSE. "We're going to lose a lot of jobs on the actual floor, so it's going to be more of a computerized network, I mean. And also, these exchanges are going to have to get more sort of derivative type products. With the Chicago merger, obviously they're beefed up, so people are going to try and compete with them there as financial strategies get more complex," he said. William Dwyer, a securities specialist on Wall street did not find the news surprising. "Globalization is not the way of the future, it's been going on for years now, so I don't think it's going to change much. I think as long as there's the right regulations and securities in place to control that, I think it will be a fine move to free market, so, like to keep it that way," The Nasdaq offer sent LSE shares up 6 percent to 1,291 pence, valuing it at about 3.2 billion pounds amid speculation that Nasdaq or another party would bid the price higher. The LSE has long been viewed as a takeover target because it is relatively small and growing rapidly. It has rejected approaches from OM Gruppen AB, Deutsche Boerse AG, Macquarie Bank Ltd. and Nasdaq since 2000. But Nasdaq CEO Robert Greifeld told analysts on a conference call on Monday that he was optimistic his company would begin talks with LSE's board soon. The latest offer represents "a very full price" at 27.9 times estimated 2007 LSE earnings, he said. Fox gave his response to the news that LSE had rejected the NASDAQ offer. "I don't think we really know why the bid has been rejected for sure. It could be a bargaining stance on the part of the London Stock Exchange looking for more money, it may also be that they think it would be better to have a combination with another European exchange which would involve less regulatory problems," Merritt B. Fox told Reuters. Greifeld said Nasdaq's purchase of 7 million shares on Monday from an unnamed long-term investor at 1,243 pence a share showed support for the offer and strengthened its position. Nasdaq and arch-rival NYSE Group Inc., the world's largest stock exchange, have been racing to create the first trans-Atlantic exchange company to expand offerings, attract listings and extend into new markets. Earlier this year, as New York-based Nasdaq built its stake in the LSE, NYSE agreed to acquire Paris-based Euronext. The NYSE deal, initially valued at $10 billion, is awaiting shareholder approval. NYSE and Euronext have said they aim to have that approval by mid-December. A person familiar with the matter said Nasdaq, which could have bid for LSE next year at a lower price, moved now to take advantage of recent declines in LSE's valuation and to avoid falling behind NYSE in the rush to consolidate. Under UK takeover rules, Nasdaq has to pay at least 1,243 pence per LSE share until the first offer expires next April. Nasdaq's new bid is 40 percent above its previous offer, but close to the level at which the No. 2 U.S. stock market paid for most of its stake. Nasdaq said it would retain the LSE brand and that the London exchange would continue to be regulated solely by the UK's Financial Services Authority. Greifeld also committed to not raising broker fees for three years.

ITN Source | November 21, 2006

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