20 September 2007ForbesParmy Olson and Carl Gutierrez
It looks like a win-win deal: Nasdaq gets the foreign stock exchange it wants to give it more global reach, and Borse Dubai gains the benefits of partnering with two world-leading exchanges.
Nasdaq and Dubai on Thursday announced that they had reached an agreement to resolve a takeover battle between the two bourses to acquire Nordic stock exchange OMX. The deal involves a complicated swapping of stakes and cash: Nasdaq will effectively let Dubai go ahead with its 230 Swedish kronor ($35.05) per share, $4 billion cash bid for OMX, an offer that had trumped that of the New York bourse--but Dubai will have to give all the shares back to Nasdaq afterward. In return, Dubai will get three things from Nasdaq: $1.7 billion in cash, a 20% stake in Nasdaq itself, and a 28% stake in the London Stock Exchange (other-otc: LDNXF - news - people ).
Although it might not have been what Borse Dubai originally wanted, it could be better still. The one-month-old Middle Eastern exchange has just established a strong foothold in two world-class rivals: the Nasdaq and the London Stock Exchange.
Shares in the London exchange shot up 10.1%, or 146 pence ($2.93), to £15.99 ($32.10) in Thursday afternoon trading, on the prospect that Dubai would launch a full takeover of the LSE in the future. Presumably, if Dubai took the whole of Nasdaq's 31% LSE stake, it would be obliged to bid for the whole exchange. Nasdaq's original 29.9% stake only went over the 30% threshold because of share buybacks. Shares in OMX (other-otc: OMGPF - news - people ) meanwhile rallied 5.0% to 252.5 Swedish kronor ($38.49) in Stockholm, notably well above Dubai's new offer price. Shareholders seem to be expecting a counterbid. Qatar, the emirate that is vying with Dubai to be the main financial hub of the Middle East, had also wanted in on this deal. (See: "Qatar Seen Going For Nasdaq's LSE Stake")
Shares of Nasdaq Stock Market (nasdaq: NDAQ - news - people ), the holding company that operates the NASDAQ Stock Market, closed up 1.4%, or 49 cents, at $36.51.
Commenting on the announcements, Essa Kazim, chairman of Borse Duabi, said, "we will benefit from NASDAQ's world leading brand, technology, and platform. In addition, this combination will establish a gateway to large pools of liquidity."
On Thursday morning in London, Qatar said it had urged OMX shareholders to take no action in response to the new joint offer from Nasdaq and Borse Dubai. "The Qatar Investment Authority is currently evaluating the situation with regards to the OMX. A further statement will be made in due course," it said in a statement. The board of OMX then said it would study the new bid and would later update OMX shareholders--but it seemed positive about the news. "The possibilities for expansion in the Middle East for OMX exchange technology through Nasdaq's investment in DIFX [Dubai International Financial Exchange, for which Borse Dubai is the holding company], will increase," OMX Chairman Urban Baeckstroem said.
But the transactions involving Dubai and Nasdaq could face scrutiny in the United States, where a Dubai-owned company's plan to manage some U.S. ports previously raised an uproar.
U.S. Sen. Charles Schumer, chairman of the Joint Economic Committee and a senior member of the Senate Banking Committee, expressed doubts about the deal, saying it "will raise serious questions that will need to be answered."
At the White House, President Bush added: “We're going to take a good look at it as to whether or not it has any national security implications involved in the transaction.”
Greifeld told reporters in Stockholm he believed the U.S. Securities and Exchange Commission would be "positive" toward the agreement.
"It's a good transaction for the U.S. capital markets system and it will make sure that Nasdaq is a key player in the global consolidation," he said. "It's our job to communicate that to legislators and regulators and clearly." Fredrik Gutenbrandt, an analyst with CA Cheuvreux, said he had expected there might be some kind of agreement between Nasdaq and Dubai over OMX, but he was surprised at how quickly the situation had been resolved and at Nasdaq's opting to go "through" Dubai to get the Stockholm-based exchange. "That it came yesterday was a bit of surprise. I had no indication that the likelihood had increased," he said. Sweden's conservative government, which is one of OMX's biggest shareholders with a 6.6% stake, would not comment on the announced deal. It was probably not involved in negotiations, but its preference to not privatize the country's main bourse, only to see it go into the hands of another government like Dubai, has been a key issue. OMX's biggest shareholder with 10.6%, the powerful Wallenberg family, would also want to support the government on such a politically sensitive deal. (See: "Will The Swedes Snub Dubai?") A government spokeswoman did not wish to comment on the new joint offer from Nasdaq and Dubai but said it would be releasing a statement on the deal later in the day. The Swedish government may well be of two minds about selling to Nasdaq as well, given that Qatar has now also requested that OMX shareholders sit tight. "Qatar could be upset about not getting that 31% stake in LSE," said Gutenbrandt, adding that it had been the only remaining bidder for the holding after several other suitors, including Deutsche Boerse (other-otc: DBOEF - news - people ), Singapore's Temasek and several Italian banks pulled out. "So now they are sitting there with a pile of cash, and they are getting more and more cash everyday. So why not be part of the bidding war of OMX?" Qatar, like other many other oil-rich nations, has a sovereign wealth fund overflowing with cash. The Qatar Investment Authority, the state's investment arm, has $40 billion worth of assets under management, according to a September 2007 report by Deutsche Bank. Its offshore gas fields in the Persian Gulf are some of the largest in the world, and they are continuously bringing in huge amounts of money. (See: "Clash Of The Emirates")
“While we see the developments allowing Nasdaq to accomplish a number of its goals,” Standard and Poor’s analyst Jason Willey said, “we view the structure as complex and having several potential hurdles, including competitive bids for OMX.”
Despite his concerns, Willey raised his price target by $5 to $39. This bidding war is not over yet.
