NASDAQ Withdraws London Stock Exchange Offer

The American NASDAQ stock market has withdrawn its offer to buy the London Stock Exchange (LSE, not to be confused with the London School of Economics). At the same time, NASDAQ has said it reserves the right to make a new and lower bid in the future. The reason for the withdrawal seems to be worries that the price just wasn’t right at this time.

Although there is the problem of SEC regulation creeping into the LSE, the idea of the NASDAQ buying a European exchange is a strategically sound concept. Trading hours could be extended, and non-US companies who don’t want to go through the whole American Depositary Receipts nonsense could have their stock traded more easily. Just as a great many other businesses have been rendered more profitable by going international, so too would the exchanges see their value rise.

That said, the problem is to make such an acquisition at a price that the shareholders of the LSE find attractive, while at the same time ensuring that there is some capital appreciation potential for the shareholders of NASDAQ. The NASDAQ bid of 950p per LSE share was below the £11 mark that the shares breeched when the bid came out, and it is still lower than the £10+ the market valued the shares at right after NASDAQ announced its withdrawal.

Under City rules, NASDAQ cannot make a new offer for six months, which is a lifetime in the investment world. However, that presumes that the LSE shareholders don’t change their minds (City rules would allow them to accept a friendly offer) or that no other offer arises (City rules would allow NASDAQ to make a new offer if this happened). The New York Stock Exchange and Euronext are frequently mentioned as possible suitors, but it is hard to see them offering more than ten quid a share. LSE is actually bigger right now than NASDAQ, so the question of integrating everything is fairly large.

The LSE is inevitably going to be sold to some other exchange as the major shareholders like Threadneedle Investments want to sell. To get a deal done, either the value of the LSE must drop in the eyes of the shareholders to a price the potential bidder may want to pay, or the potential bidder must find more value that any of them currently sees in the LSE. What could change this? As the late Prime Minister Harold MacMillan said, “events.” A little terrorism, a shift in interest rates, a crashing pound, much can happen in six months.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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