NASDAQ makes another move on LSE

Rex Mathew
20 November 2006

NASDAQ Stock Market Inc, which operates the largest electronic stock market in the world, has made another unsolicited bid to acquire the whole of London Stock Exchange Group (LSE) Plc, which operates the largest European stock exchange. The all-cash bid revealed announced in London today values LSE at around $5.1 billion.

The offer has sent LSE shares soaring in today''s trades. The stock touched a high of 1,298 pence and is currently trading at 1,288 pence per share, nearly 6 per cent above Friday''s closing level and 3.5 per cent higher than NASDAQ''s offer price of 1,243 pence.

NASDAQ had made an unsolicited bid to acquire LSE Group in March this year for $4.1 billion, but failed to get the support of LSE Group board which insisted that the offer was too low. NASDAQ had to back out from a full acquisition, but built up a 25 per cent stake in LSE Group instead and became its single largest shareholder. Ever since, NASDAQ had maintained that it does not intend to make a full acquisition any time soon.

But the acquisition of European electronic exchange Euronext by NASDAQ''s American rival NYSE Group has forced the world''s largest electronic exchange to come out with a fresh bid to establish a European foothold. NYSE is all set to merge Euronext with itself after German stock exchange operator Deutsche Boerse dropped a rival $10 billion bid. The NYSE - Euronext deal would create the first pan-Atlantic stock market group and provide international companies with options to list in the US, Europe or both locations.

If the NASDAQ - LSE deal goes through, the combined exchange would have around 6,400 companies listed on it with a market capitalisation of close to $12 trillion. NASDAQ had made an earlier attempt to acquire LSE in 2002, which failed because of regulatory issues in the US and Europe. Deutsche Boerse and Australian bank Macquarie had also separately tried to acquire LSE in the recent past.

NASDAQ has also increased its stake in LSE to nearly 29 per cent through open market purchases, which may bring down shareholder opposition and pressurise the LSE board to recommend the deal to other shareholders. Hedge funds own around 30 per cent of LSE and may be willing to sell out. But the LSE board is expected to drive a hard bargain before recommending the deal to shareholders.