May 25 (Bloomberg) -- Nasdaq Stock Market Inc. agreed to buy Sweden's OMX AB for 25.1 billion Swedish kronor ($3.7 billion), pushing into Europe after two failed attempts to acquire London Stock Exchange Group Plc.

Nasdaq offered 208.1 kronor a share in cash and stock, or 16 percent more than Stockholm-based OMX's closing price yesterday, the companies said in a statement today. OMX, founded in 1985, was the world's first publicly listed bourse, and operates seven Nordic and Baltic exchanges.

OMX, Europe's fifth-largest stock exchange, gives Nasdaq a foothold across the Atlantic to compete with NYSE Group Inc., which acquired Euronext NV, Europe's No. 2 exchange, last month. Nasdaq Chief Executive Office Robert Greifeld abandoned a yearlong battle in February to buy LSE, the region's biggest bourse, and settled on OMX to add stock and derivatives trading in Europe and enter the market for software to run securities exchanges.

``Nasdaq has been able to snatch victory from the jaws of defeat,'' said Octavio Marenzi, CEO of Celent LLC, a financial research and consulting firm in Boston. ``The fit between OMX and Nasdaq is a comfortable one with both organizations being technology-driven firms.''

OMX shares jumped 19.5 kronor, or 11 percent, to 199.5 kronor in Stockholm, giving the company a market value of 24 billion kronor. The shares have risen 58 percent this year. Nasdaq's stock fell $1.14, or 3.4 percent, to $32.84 at 4:30 p.m. in composite trading New York. The stock of the newly formed company will trade in both Stockholm and New York.

Volvo and Microsoft

The combined exchange will be called Nasdaq OMX Group and list companies with a total market value of about $5.5 trillion ranging from Volvo AB, the world's second-biggest truckmaker, and Microsoft Corp., the worlds largest software maker. Rival NYSE Euronext lists companies with a market value of $29.7 trillion.

Nasdaq will pay 94.3 kronor a share in cash, plus issue 0.502 of its shares for each OMX share. The two companies have already secured the approval of some of their largest shareholders, including Hellman & Friedman LLC, Silver Lake Partners, Investor AB and Nordea Bank AB.

Under the terms of the deal, Nasdaq is paying about 7.6 times sales for OMX compared with about the 10 times that NYSE paid for its $14 billion acquisition of Euronext, according to Bloomberg calculations.

`Cheap Acquisition'

``It's a good deal for Nasdaq,'' said Mamoun Tazi, an exchange analyst at Man Securities in London who estimates OMX fair value at 210 kronor. ``It's a cheap acquisition given the company they are buying. They get access to Europe, to derivatives, to equities, to technology and they get cost savings.''

With OMX, Nasdaq also enters the growing market for software to run securities exchanges. The Hong Kong Stock Exchange, the Singapore Exchange and New York-based International Securities Exchange Holdings Inc. all run on OMX systems.

``The beating heart of an exchange is technology,'' Greifeld told analysts in a conference call. ``We really have the ability to tie together the beating hearts of these different exchanges, assuming they want to.''

The transaction will be completed in the fourth quarter and add to Nasdaq's earnings by 2009, the companies said. Nasdaq and OMX will share technology expenses across their different markets, cutting annual costs before taxes by $100 million and generating additional revenue of $50 million by 2010.

Nasdaq's Greifeld, 49, will be CEO of the combined exchange and OMX's CEO Magnus Boecker, 45, will be president. The board of directors of the combined company will consist of nine members from Nasdaq, five from OMX and the company's CEO.

Industry Consolidation

The sale of OMX extends consolidation among exchanges that already has resulted in at least $64 billion of acquisitions and joint ventures since 2005, data compiled by Bloomberg show. The largest was NYSE Group's purchase of Paris-based Euronext, creating the first trans-Atlantic stock market.

Greifeld unsuccessfully pursued the LSE for more than a year, offering as much as 2.7 billon pounds ($5.4 billion) to buy Europe's largest exchange by the value of its listed companies. Greifeld declined to comment on the U.K. exchange today.

``The LSE was always a better fit because they had similar equities trading systems and business models,'' said David Easthope, an analyst at Boston-based research and consulting firm Celent LLC. ``The LSE was a better marriage, if they could get it done, but this to me is the best second choice.''

More Profitable Markets

An OMX deal may help boost Nasdaq's stock as the exchange also gains entry into the more profitable derivatives trading business, said Ed Ditmire, an analyst at Fox-Pitt, Kelton Inc. in New York. Unlike rival markets, Nasdaq can't rely on overseas equity trading or derivatives to compensate for increased competition in matching buyers and sellers of stocks in the U.S.

``With a business mix that's international and includes derivatives, people may assign a higher multiple than they do right now,'' said Ditmire, who has an ``outperform'' rating on Nasdaq shares and expects the stock to rally to $42 by the end of the year.

Shares of Nasdaq have lagged behind those of rivals for the past year and fetch 26 times next year's earnings, the lowest among U.S. exchanges. Nasdaq shares gained 8.5 percent over the last year, compared with a 62 percent gain for the FTSE/Mondo Visione Index, which tracks 18 rival markets around the world.

Nasdaq shares have trailed rivals on concern that increasing competition in the U.S. among equity markets may curb revenue growth. The CEO of rival Bats Trading Inc. David Cummings told customers today he plans to take advantage of the NYSE and Nasdaq trans-Atlantic transactions to gain more business in the U.S.

Rivals Distracted

``Our two large competitors are now distracted with very difficult integration challenges as they worked to de-emphasize the U.S.,'' wrote Cummings in an e-mail to traders who use the Kansas City, Missouri-based electronic market.

Nasdaq's cash-and-stock offer for OMX might increase the company's $1.49 billion in debt, prompting Moody's Investors Service to say it may lower its rating on the company's credit from Ba3, three levels from investment grade. The transaction requires that Nasdaq refinance its debt, Chief Financial Officer David Warren told analysts today.

Hellman & Friedman and Silver Lake Partners, two California- based buyout firms which hold a combined 26.5 percent of Nasdaq, have agreed to support the takeover. Investor AB, the holding company of the Swedish billionaire Wallenberg family, and Nordea Bank AB, the largest lender in the Nordic region, also agreed to support the transaction with their roughly 16 percent stake in the OMX.

Studying the Deal

The Swedish government, which owns 6.6 percent of OMX, said it's studying Nasdaq's bid before accepting it.

``The government's aim is to reduce ownership in several companies, including OMX,'' said Financial Markets Minister Mats Odell. ``Taking this into account, it's of course positive that there's interest in the company.''

Nasdaq was founded in 1971 as a system to electronically disseminate quotes for buying and selling shares and now handles almost two-thirds of the roughly 5.4 billion shares that change hands daily in the U.S.

OMX traces its roots to 1985, when former Chairman Olof Stenhammar founded an electronic trading system for options contracts. The company acquired the Stockholm Stock exchange 13 years later and become the first publicly listed exchange operator in the world in 1987.

Nasdaq is being advised by JPMorgan Chase & Co. and OMX by Credit Suisse Group and Morgan Stanley.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net; Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: May 25, 2007 17:10 EDT