President and CEO of Nasdaq Robert Greifeld (right) and Chief Financial Officer David Warren outside an office in central London, yesterday. The United States-based Nasdaq stock exchange launched a £2.7 billion offer for the London Stock Exchange yesterday in a bid to become the world's first transatlantic bourse. - Reuters
LONDON, United Kingdom (AP):
Nasdaq Stock Market Inc. shrugged off a swift rejection of its bid to take over the London Stock Exchange (LSE), saying yesterday that it would make its pitch directly to stockholders until the target's board agrees to talk.
The London exchange, which has fought off a string of suitors, said Nasdaq had substantially undervalued the company with a cash offer of 1243 pence (€18.34; US$23.56) per share for the more than 70 per cent of shares the New York company doesn't already own.
That offer values the LSE at £2.7 billion (€4 billion; US$5.1 billion).
The market, which saw LSE shares close at 1274.91 pence (US$24.17; €18.84), suggested Nasdaq would have to pay more.
"This is a long game that we're playing, and I'm optimistic we'll engage with the London Stock Exchange board in a relatively short period of time," Nasdaq chief executive Robert Greifeld told analysts after being informed of the rejection.
"As the process moves along, the likelihood we'll engage with the board increases day by day."
Glitch in offer
Analysts said shareholders have to consider the London exchange's prospects if the New York Stock Exchange completes its takeover of Euronext, and if seven big investment banks go ahead with their plans to set up a rival exchange in Europe.
Nasdaq's offer represents a premium of 54 per cent on LSE's closing share price March 10, the day before the LSE said it had received an approach, and was the minimum bid the U.S. exchange could make under British takeover rules.
"We believe Nasdaq's final offer fails to recognise the outstanding growth record and prospects of our group on a standalone basis let alone the exchange's unique global position," said Clara Furse, LSE chief executive officer.
Nasdaq followed up its formal offer by buying another seven million shares, raising its stake from 25.1 per cent to 28.75 per cent of LSE shares.
Scottish Widows Investment Partners, a subsidiary of Lloyds TSB which previously sold 10 million LSE shares to Nasdaq, said yesterday's sale was on behalf of an unidentified client.
Nasdaq cannot acquire more than 30 per cent of the LSE for another 30 days because of United Kingdom takeover laws. After that point, once Nasdaq gains more than 50 per cent, it would be able to control the LSE board.
Greifeld argued that the offer was "full, final and fair" and added that he wanted the approval of the LSE board, but left open the possibility of a higher offer if a rival suitor emerged.
Keith Baird, an analyst at Fortis Private Investment Management in London, said Nasdaq had offered less than the market wanted.
"The word was that the hedge funds which hold a significant minority of shares wanted 1300 pence," Baird said.
Rapid delevering
That price would probably win the day, Baird said, but for now, "I think if I had the shares, I would obviously hold on."
Nasdaq said its bid would be financed through cash reserves, borrowing and by issuing preferred stock, but gave no details.
Moody's Investors Service put Nasdaq on review for downgrade, suspecting that the deal would largely be financed by debt.
"Should the transaction go through, the significant financial leverage will leave Nasdaq little room for error," said Moody's senior vice president Peter Nerby. "Execution and rapid de-levering will be key."
A Nasdaq-LSE combination would create the world's largest equity market by value of listed companies, Nasdaq said, with more than 6,400 quoted companies with a total value of about £6.3 trillion (€9.3 trillion; US$11.3 trillion).
The LSE, Europe's oldest bourse, now takes about half of the initial public offerings in Europe including many flotations of Russian and Eastern European companies.
Earlier this month, the LSE reported that first-half net profit more than doubled to £54.1 million (€80.9 million US$103.2 million) as electronic trading increased 56 per cent and income from initial public offerings rose.
"In the year to October, the exchange has underlined its position as the world's primary listing venue with £22.3 billion (€32.9 billion; US$45.3 billion) raised through IPOs, 96 per cent more than the same period in 2005 and more than any other exchange so far this year," the LSE in rejecting the Nasdaq bid.
Fox-Pitt Kelton analyst Andrew Mitchell said the bid was shrewdly timed following last week's slump in the share price below 13 pounds, and that it would be "difficult for London to defend itself."
Earlier this year, Nasdaq made an offer of £9.50 per share for the LSE, but abruptly withdrew in March.
Australia's Macquarie Bank Ltd., Germany's Deutsche Bourse AG and Sweden's OM Gruppen have also all failed in previous overtures to take over Europe's oldest exchange.
Mitchell said Nasdaq has no obvious rivals this time around.
"Deutsche Boerse attempted before at a much lower level and you can't rule them out entirely, but they are an unlikely candidate," he said.
NYSE Group Inc., owner of the New York Stock Exchange, agreed in June to pay US$9.96 billion (€7.5 billion) for Euronext, which operates the Paris, Amsterdam, Brussels and Lisbon exchanges. The bid subsequently rose to US$13 billion (€10.1 billion) to force Deutsche Boerse out of the bidding.
The combined sales of Nasdaq and LSE would be about US$1.4 billion (€1.1 billion), based on their last set of full-year results. That compares with about US$2.3 billion (€1.8 billion) for NYSE-Euronext.
Greifeld said he wasn't concerned about last week's news that seven major investment banks - Citigroup Inc, Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc, Merrill Lynch & Company, Morgan Stanley and UBS AG - plan to launch their own European equities exchange next year.
"It's important to note that Nasdaq was not born through a historical monopoly. It has had to compete. We clearly have our competitive instincts engaged," Greifeld said.
Greifeld said Nasdaq would cut transaction fees as trading volumes rise.
"That will be a hallmark of the combined entity," he said.
Niclas Lilja, a spokesman for Sweden's OMX, which previously bid for the LSE, declined to comment on the Nasdaq offer.
"We can comment on our own exchange, not others," he said.
A spokesman for Deutsche Boerse also declined to comment.
