KEY POINTS:
LONDON/NEW YORK - Nasdaq launched its £2.7 billion ($7.7 billion) hostile bid for the London Stock Exchange today, needing just over a fifth of LSE shareholders to accept for it to take control.
The largest US electronic stock exchange is appealing directly to LSE investors with a 1243-pence-per-share bid after being spurned twice in the past nine months by Europe's biggest stock market.
Nasdaq shares were down less than 1 per cent at US$36.14 ($52.27) in afternoon trading.
Nasdaq Stock Markets Inc., which already owns 28.75 per cent of London Stock Exchange Plc, has lowered the level of shareholders it needs to agree to its bid to 50 per cent from 90 per cent, leaving just 21.3 per cent of LSE investors required to vote in favour before it can take control of the exchange.
"The offer of 1243p per ordinary share represents a full and fair value for LSE shareholders, taking into account both the successes of the business but also the new competitive threats which the LSE will face in 2007 and beyond," said Nasdaq Chief Executive Robert Greifeld.
The US exchange said it was seeking acceptances from LSE shareholders by January 11.
The LSE reiterated its rejection of the bid. "The board unanimously rejects Nasdaq's offer as it substantially undervalues the exchange and fails to reflect its unique strategic position and the powerful earnings and operational momentum of the business," it said in a statement.
Under the British takeover code, Nasdaq can raise its offer under two conditions: if the LSE board recommends the bid to shareholders, or if a rival bidder comes forward.
Now that Nasdaq has formally launched its offer, the LSE has until December 26 to put out its initial defence points under UK takeover law. The LSE then has until January 20th to announce its full defence, then Nasdaq has until January 27th to make final changes to its offer.
But Nasdaq has limited its legal ability to change its offer by describing it as "full and final."
"I don't think (LSE) is in negotiating mode right now," said Fox-Pitt, Kelton analyst Edward Ditmire. "They will probably lay out a stand-alone alternative, which they'll explain is of superior value to the 1243 bid."
Signaling that they may sell at a higher price could undermine the exchange's commitment to such an alternative, which benefits Nasdaq as it lowers LSE shareholder incentive to hold out, Ditmire added.
"The offer is not the kind that blows people away, but the hurdle is not very high," said Ditmire. "I wouldn't be surprised if went through."
Analysts believe the LSE may be running out of options after British financial markets broker ICAP decided not to pursue fresh merger talks.
The New York Stock Exchange's owner, NYSE Group Inc., is pursuing a merger with pan-European exchange Euronext, and the LSE's past suitors, such as Deutsche Boerse, Australia's Macquarie Bank and Euronext, were all interested when LSE shares were trading at much lower levels.
Hedge fund investors, led by Samuel Heyman, have bought stakes in the British exchange through the derivatives market at prices higher than Nasdaq's offer on speculation the bid would be sweetened.
A source familiar with the matter said now that the offer document was out, those hedge funds were likely to begin a dialogue with Nasdaq over its bid.
LSE shares have more than trebled in value over the past two years amid persistent bid speculation. They closed at 1320 pence yesterday, signalling that investors were still hopeful of a higher bid. The shares were flat at 1320 pence today.
The world's stock markets are jostling for partners, under pressure from customers who want lower fees and broader offerings. A competitive threat to established bourses is coming from their investment banking clients, a group of which last month said they plan to create a new pan-European equity trading platform next year.
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS said they would form a new company to develop the platform, which would compete with the LSE and other leading exchanges.
- REUTERS
