20 September 2007

LSE faces fresh bidding war

Nearly 50 per cent of the London Stock Exchange is now in the hands of two rival Gulf states battling to be their region’s leader in the global consolidation of exchanges. Qatar Investment Authority and Borse Dubai now own 48 per cent of the LSE following a complex series of deals in which ownership of Europe’s exchanges is being realigned.

Borse Dubai secured 28 per cent of the LSE as part of a wider deal with the US-based Nasdaq designed to settle their long-running battle for control of the Nordic exchanges and technology operator OMX. The Dubai group bought most of Nasdaq’s 31 per cent stake in the LSE for £14.40 a share in cash. In return, it will take a 19.9 per cent stake in the combined Nasdaq/OMX group and receive cash.

However, the move enraged the Qatar Investment Authority, which until Tuesday night believed it was close to clinching a deal to buy much of the LSE stake for itself. It responded on Thursday by buying nearly 20 per cent of the LSE, sparking expectations of a bidding war for the exchange. LSE on Thursday welcomed the Qatari move because it sees QIA as a passive investor.

Meanwhile, the QIA also bought nearly 10 per cent of OMX, a move widely interpreted as a sign that it, too, will make a competing offer for the Stockholm-based group. It issued a statement calling on OMX shareholders to do nothing in response to Borse Dubai’s offer.

LSE shares soared on Thursday, closing £2.34 higher at £16.87. Qatar bought the stakes held by two hedge funds that had been instrumental in seeing off a hostile bid for the LSE by Nasdaq last year, believing the £12.43 price it offered was too low.

However, before official word of the deal was out, there were signs that it might face political opposition in the US. Charles Schumer, a US senator and chairman of Congress’s joint economic committee, said: “This deal raises serious questions . . . Those questions will include – should we allow foreign governments to take over our financial exchanges and how much control and influence should those foreign governments have?”

George W. Bush, US president, said the proposed investment by state-controlled Borse Dubai in the US exchange would face a national security review.

The move by Nasdaq to clinch a toehold in Europe through an acquisition of OMX caps years of unsuccessful efforts to break into the region. It is believed that Nasdaq agreed to allow Borse Dubai to take the stake to head off an expensive bidding war with a rival whose pockets are deeper than its own.

“The way we see this transaction is a pure win win win,” said Bob Greifeld, chief executive. In addition to the tie-up in the Nordic region with an operator that is also a technology supplier to many exchanges, it offers Nasdaq a leg up in the Middle East. He added that Nasdaq was eager to break into Europe because competitive barriers were easing, leaving scope for new entrants to secure business.

By Norma Cohen in London

© Graham Bishop