19 December 2006

Nasdaq: London again rebuffs Nasdaq

The London Stock Exchange on Tuesday again rebuffed a takeover bid by the Nasdaq Stock Market, saying the offer undervalues the exchange in light of a new forecast that this year's profit will jump 58%.

In the first step of its highly anticipated defense against the Nasdaq bid, the LSE told shareholders that the offer was 'wholly inadequate' and added that it expects 2006 earnings of 50.4 pence a share, citing higher trading volumes and a continuing increase in new stock listings.

The exchange also said it would raise its total dividend payment for 2007 to at least 18 pence a share -- a 50% rise.

Chief Executive Clara Furse told analysts on a conference call that the Nasdaq offer 'ignores our unique strategic position, fails to share any synergy benefits, does not offer a premium for control and does not even offer standalone value.'

She added the exchange is planning a second defense document, which it will also send to shareholders.

Shares in the LSE dipped 0.4% at 1,312 pence, in line with a wider decline in the U.K. market, though remained above the offer price of 1,243 pence, or 2.7 billion pounds ($5.3 billion).

In its defense letter to shareholders, the London exchange said its strong growth prospects mean Nasdaq's (NDAQ) bid reflects a lower earnings multiple than NYSE Group's (NYX) $14 billion offer for Euronext, a landmark transaction that won approval by Euronext shareholders meeting in Amsterdam.

In New York, Nasdaq officials responded swiftly, claiming the London exchange's share price isn't supported by its stand-alone valuation.

Nasdaq officials said the London exchange has failed to address the potential for increased competition from investment banks stemming from regulatory changes due in 2007.

'The board of the LSE is ignoring the elephant in the room at its peril,' said Nasdaq CEO Robert Greifeld, according to a statement from the exchange.

'Its recent growth in revenues has taken place without a proper sharing of benefits with users.' Greifeld said. 'Regulatory changes, increased consolidation and customer group competition are likely to bring significant downward pressure on the LSE's revenue model going forward,' he added.

A combination with Nasdaq, which already owns almost 30% of the LSE, would create a transatlantic exchange group comprising 6,400 listed companies with a total market capitalization of $11.8 trillion.

According to the London exchange, the Nasdaq offer values the LSE at 24.7 times its expected adjusted basic earnings per share for 2006, while the NYSE bid values Euronext at 30.1 times its expected earnings for the year.

The U.K. exchange added Nasdaq's previous bid of 950 pence a share, which was withdrawn in March, valued the exchange at 29.8 times its 2005 earnings.

'Over the last twelve months, records have tumbled in terms of money raised as well as the volume and value of trading on our markets. This is further confirmation of the significant progress we are making towards the realization of our vision to be 'the world's capital market,'' said LSE Chairman Chris Gibson-Smith in a written statement.

'For the second time this year, Nasdaq is offering a wholly inadequate price for the company and shareholders should reject the offer,' he added.

Nasdaq has characterized its offer, which runs until Jan. 11, as final, meaning it can only be raised in the unlikely event that an alternative bidder appears or if the LSE's board will agree to a friendly takeover at a higher price.

Getting an agreement from the LSE will be tough, analysts agree, given the U.K. exchange's consistent rejection of Nasdaq's approaches and refusal to meet the U.S. exchange.

Nasdaq has countered by cutting the level of shareholder acceptance it needs to go ahead with the deal to 50% from 90%.

The U.S. exchange would have liked to get agreement from 90% of shareholders because that would have allowed it to squeeze out the remaining shareholders and take the LSE private.

An agreement from just 50% of shareholders could see the LSE remaining listed with Nasdaq as a majority shareholder. But crucially it could mean Nasdaq would not have to get agreement from hedge funds and other activist investors who have bought LSE shares above the offer price in the hope that the bid will be raised.

© Dow Jones Newswires