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Nasdaq Gets Hostile in London

The U.S. equity-market outfit took its takeover bid for the London Stock Exchange directly to LSE shareholders Tuesday

Nasdaq Gets Hostile in London

The U.S. equity-market outfit took its takeover bid for the London Stock Exchange directly to LSE shareholders Tuesday

The Nasdaq Stock Market continued its relentless pursuit of the London Stock Exchange on Dec. 12, ignoring the LSE board's rejection of its £2.7-billion ($5.3 billion) bid and taking the offer directly to shareholders.

Shareholders have until Jan. 11 to accept the offer of 1,243 pence per share, originally made on Nov. 20. LSE said the bid "substantially undervalues" the exchange and advised investors to "take no action." New York-based Nasdaq (NDAQ) already holds 28.75% of London Stock Exchange shares. LSE's share price closed unchanged in London at 1,320 pence.

Nasdaq had originally said that 90% of LSE shareholders would need to accept its bid for the deal to go through. Now that the offer has turned hostile, Nasdaq has lowered the threshold to just 50%. Given Nadsaq's existing ownership stake, if just 21.25% of LSE stockholders tender their shares, the deal will be won.

Still, with LSE shares currently trading at a 6% premium to Nasdaq's offer, investors may be reluctant to agree. What's more, under British securities rules, Nasdaq can only submit a higher bid if LSE's board recommends it or if a counteroffer is made for the LSE.

To compound matters, Nasdaq's offer is so highly leveraged that a higher bid would leave it financially stretched, industry experts say. "There are a lot of questions that need to be answered before you can say it's a done deal," said Mamoun Tazi, senior analyst at Man Securities in London.

The LSE board has so far refused to meet with Nasdaq management, though it may be forced to in the end if it cannot convince shareholders it is better off as a stand-alone entity (see BusinessWeek.com, 11/20/06, "The LSE May Finally Fall for Nasdaq").

Nasdaq's shares climbed early in the U.S. session Dec. 12 before heading south, shedding 2.1% to $35.54 in afternoon trading. The exchange intends to borrow up to $5.1 billion to finance the takeover.

Nasdaq CEO Robert Greifield said the offer reflects "a full and fair value" for LSE shareholders. The price represents a 54% premium over LSE's closing share price on Mar. 10, 2006, after Nasdaq made its initial offer and reflects the success of the business as well as the "new competitive threats" it is facing. In November, seven of the world's largest investment banks, including Morgan Stanley (MS) and Goldman Sachs (GS), said they're joining forces to create their own pan-European equities trading platform.

Nasdaq and its U.S. rival, the New York Stock Exchange (NYX), are aggressively pursuing tie-ups with European exchanges as securities growth in the region outpaces that of the U.S. The NYSE is close to sealing its takeover of Paris-based Euronext, an alliance of the Amsterdam, Brussels, Paris and Lisbon exchanges.