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Nasdaq Stock Market Inc. today made a £2.7 billion ($7.8 billion) offer for the London Stock Exchange, to create a trans-Atlantic market, but it was quickly rejected as inadequate.
Nasdaq said the deal would create the world's largest exchange by number of listings, over 6400 companies with a market value of US$11.8 trillion, and the most active exchange with average daily volume of 7.4 billion shares traded. This was Nasdaq's second offer since March.
LSE shares rose 6 per cent after the news.
Nasdaq, which on Monday increased its LSE stake to 28.75 per cent, said it would pay 1243 pence per share in cash for the rest of the LSE, Europe's biggest stock market.
"They are chipping away," Celent analyst David Easthope said, though he added Nasdaq's "bid is below the current market value for LSE, given how many suitors LSE has had over the past few years."
The LSE rejected Nasdaq's offer within seven hours, with Chief Executive Clara Furse saying it "fails to recognise the outstanding growth record and prospects of our group on a stand-alone basis."
The move comes as the world's stock markets rush to consolidate, pushed by customers who want lower fees and broader offerings. Last week a group of the world's largest securities dealers announced plans to create a rival European equity trading platform, adding to the pressure.
The Nasdaq offer sent LSE shares up 6 per cent to 1291 pence, valuing it at about £3.2 billion amid speculation that Nasdaq or another party would bid the price higher.
"Clara Furse will be rushing around to find a white knight, maybe OMX or Deutsche Boerse. Or maybe the board will agree to a higher offer, say around 1300 pence," one senior dealer in London said.
The LSE has long been viewed as a takeover target because it is relatively small and growing rapidly. It has rejected approaches from OM Gruppen AB, Deutsche Boerse AG, Macquarie Bank Ltd and Nasdaq since 2000.
But Nasdaq CEO Robert Greifeld told analysts on a conference call on Monday that he was optimistic his company would begin talks with LSE's board soon. The latest offer represents "a very full price" at 27.9 times estimated 2007 LSE earnings, he said.
Greifeld said Nasdaq's purchase of 7 million shares on Monday from an unnamed long-term investor at 1,243 pence a share showed support for the offer and strengthened its position. "Getting to 28.75 per cent is a good start to this effort," he said. "It gives us tremendous momentum."
Nasdaq declined to assign a number to the deal's financial impact, though its executives estimated LSE would increase per-share earnings in 12 to 18 months. The offer will officially be made to LSE shareholders this week, Nasdaq said on the call.
Nasdaq and archrival NYSE Group Inc., the world's largest stock exchange, have been racing to create the first trans-Atlantic exchange company to expand offerings, attract listings and extend into new markets.
Earlier this year, as New York-based Nasdaq built its stake in the LSE, NYSE agreed to acquire Paris-based Euronext. The NYSE deal, initially valued at US$10 billion, is awaiting shareholder approval.
NYSE and Euronext have said they aim to have that approval by mid-December.
A person familiar with the matter said Nasdaq, which could have bid for LSE next year at a lower price, moved now to take advantage of recent declines in LSE's valuation and to avoid falling behind NYSE in the rush to consolidate.
Under UK takeover rules, Nasdaq has to pay at least 1243 pence per LSE share until the first offer expires next April. Nasdaq's new bid is 40 per cent above its previous offer, but close to the level at which the No. 2 US stock market paid for most of its stake.
UK Treasury Minister Ed Balls said Britain would not stand in the way of Nasdaq's bid.
Moody's Investors Service said it might downgrade Nasdaq's Ba3 debt rating, citing concern the exchange would face increased debt and integration challenges.
"Should the transaction go through, the significant financial leverage will leave Nasdaq little room for error. Execution and rapid de-levering will be key," Moody's analyst Peter Nerby said in a note.
Nasdaq said it would retain the LSE brand and that the London exchange would continue to be regulated solely by the UK's Financial Services Authority. Greifeld also committed to not raising broker fees for three years.
- REUTERS
