Majestic Research

The New York Times

Nasdaq Buys 15% Stake in London Stock Exchange

By Landon Thomas Jr
Published: April 12, 2006

The Nasdaq stock market said today that it had purchased a 15 percent stake in the London Stock Exchange, Europe’s largest stock exchange, in a move to expand its international profile.

The purchase makes Nasdaq the largest shareholder in the London exchange and comes a month after Nasdaq’s $4.1 billion bid to buy the exchange was rebuffed for being insufficient.

The move underscores the growing importance of independent exchanges like London, which operate like natural monopolies because of their ability to attract lucrative corporate listings.

Nasdaq and the New York Stock Exchange, which recently closed on its merger with the electronic market Archipelago, are bitter competitors that harbor bold international ambitions to add to and diversify their businesses. While Nasdaq’s purchase of 15 percent of the London exchange does not guarantee a deal, it gives Robert Greifeld, Nasdaq’s chief executive, an important strategic chip to use while putting the pressure on his counterpart at the Big Board, John A. Thain, to respond in kind. Mr. Greifeld can either increase his position or, if a bidding war ensues, sell at profit.

“This move guarantees Nasdaq a seat at the table,” said Douglas Atkin, the chief executive of Majestic Research, an independent research outfit. “But I don’t think John Thain has shown his hand. I would not be surprised if he comes in and makes a competing bid.”

Nasdaq said today that it had paid $782 million for its stake, with the bulk of the position coming from Threadneedle Asset Management, one of the London exchange’s larger shareholders. A spokeswoman for the London exchange described the deal as a “strategic” step and declined to comment further, citing British regulatory restrictions.

The London Stock Exchange, under its chief executive, Clara Furse, has tried to keep its independence, but its comparatively low valuation and its robust cash flows have made it a compelling target for exchanges looking to expand overseas. With an increasing number of companies reluctant to submit to the stiff regulatory requirements of Sarbanes-Oxley, the London exchange has become a popular listing alternative.

Nasdaq paid £11.75 a share for its 15 percent stake, 24 percent more than its original offer of £9.50 a share, providing further indication of the London exchange’s attractive valuation. In addition to Nasdaq, other exchanges in Europe had made bids for the London exchange, including Deutsche Borse and Euronext.

While Mr. Thain has made it known that he is interested in using the New York Stock Exchange’s newly listed stock as a currency for future deals, he has yet to show any public interest in the London exchange.