Nasdaq Stock Market Inc.’s hostile bid for London Stock Exchange Plc failed for the second time in almost a year as the majority of shareholders in the U.K. company spurned the 2.7 billion pound ($5.3 billion) offer.
Shareholders controlling 0.41 % of LSE agreed to sell their stock to Nasdaq for the offered 1,243 pence a share, the U.S. exchange said in an statement today. That would give Nasdaq a 29.16 % stake in the LSE, shy of the 50 % needed to take control of Europe’s largest equity market.
“We are naturally disappointed at this outcome,” Nasdaq Chief Executive Officer Robert Greifeld said in the statement. “Nasdaq will continue to pursue other opportunities to build on its existing position as the world’s largest electronic equities exchange.”
Greifeld unsuccessfully tried to open talks with the LSE since March about creating the first trans-Atlantic stock exchange. Nasdaq’s larger rival, NYSE Group Inc., is poised to link stock markets in four European countries and the U.S. with its $13.3 billion purchase of Paris-based Euronext NV, a deal that may be completed as soon as April.Almost $50 billion of proposed mergers have been announced between exchanges worldwide, according to Bloomberg data, as marketplaces seek to meet demand for low-cost electronic trading in securities across the world’s time zones.
LSE Chief Executive Officer Clara Furse, who in addition to Nasdaq has rejected three other suitors since 2004, has said the U.K. exchange could remain independent bolstered by a growth in trading. Today, the 308-year-old exchange said Nasdaq’s bid was “ill-considered” and that it would pursue “competitive, collaborative and strategic opportunities.”
Investors including Samuel Heyman and New York-based hedge fund Paulson & Co. have both added to their stakes in LSE on expectation of a deal at a higher price than Nasdaq. Together, they’ve amassed a 16.4 % stake in the LSE, paying as recently as last week more than Nasdaq’s offer.
“Shareholders believe there’s a higher bid out there and are holding LSE stock on speculation a better offer is coming,” said Bruce Weber, a professor at the London Business School who follows exchanges. “London management has been playing hardball and didn’t engage with Nasdaq.”
Shares in LSE have gained 23 % since Nasdaq’s first bid was disclosed March 10. The stock had traded above Nasdaq’s offer since Nov. 20 when the company decided to appeal directly to shareholders. It closed unchanged yesterday at 1,282 pence, or 3.1 % higher than Nasdaq was willing to offer.Nasdaq shares have slipped 15 % since March 10 as the company failed to draw the LSE to negotiate a deal. Shares of rival NYSE Group have advanced 24 % during the period, while Euronext has jumped 63 %. “Nasdaq seems to need the LSE more than the LSE needs Nasdaq, with their cross-town rival getting bigger and expanding internationally,” said Michael Pagano, a finance professor at Villanova University in Villanova, Pennsylvania. “The LSE seems to have a strong position, where they are attracting more and more order flow.”
Nasdaq may either decide to hold on to its LSE stake until it can make a new offer in a year, or attempt to sell the investment for a gain, according to Sandler O’Neill & Partners analyst Richard Repetto. If it manages to sell its LSE investment for more than 1,200 pence, Nasdaq could boost profit this year by as much as 23 cents a share, Repetto said.“Most of the scenarios result in generally positive outcomes with Nasdaq realizing a gain in its LSE position,” said Repetto, who has a “buy” rating on the stock.Nasdaq bought a 28.75 % stake in the LSE on the open market from April through November, paying an average of 1,193 pence a share.
Furse said last month new listings and a projected increase of about 40 % in daily trading for fiscal 2008 would allow the LSE to remain independent. Nasdaq says the LSE’s forecasts are “misleading” and the exchange remains “complacent” in the face of growing competition and regulatory changes.
A group of eight investment banks, including Deutsche Bank AG and Goldman Sachs Group Inc., plan to create this year an equity market to challenge European exchanges. With the plan, known as Project Turquoise, the firms seek to benefit from new European rules that take effect in November called the Market in Financial Instruments Directive, or Mifid, which is designed to stimulate competition.The new rules could reduce the profitability of the LSE, Nasdaq said on 11 February.“The accuracy or inaccuracy of LSE’s projections can only be proven through the passage of time and Nasdaq, as LSE’s largest shareholder, will monitor with interest how the business performs going forward,” Nasdaq said in the statement.