The Sage Continues

14 April 2006



NASDAQ Takes 15% Stake in London Stock Exchange

Just two weeks ago, NASDAQ withdrew a 950p per share indicative bid for the London Stock Exchange. So it raised more than one eyebrow when NASDAQ announced that it had purchased a 14.99% stake in the LSE earlier this week. The American market explained that it was “an important strategic purchase.” This is “through-the-looking-glass” reasoning, and NASDAQ shareholders need to act before they get burned.

If one insists that businessmen and women are rational and are motivated by reason (rather than by their own egos and emotions), there can be but one explanation for the NASDAQ decision of this week. The big shots there fear that someone else is going to buy the LSE. The New York Stock Exchange is the obvious other bidder. An LSE-NYSE (pronounced “license” by those who consider such matters) link leaves NASDAQ as an also ran. With about 15% of the shares, NASDAQ just got itself some protection, but hardly enough to really stop a deal if other shareholders like the price offered. However, it could have bought itself a lot more had it left the 950p bid on the table or even improved on its offer.

Alternatively, if one believes that business people are just as susceptible to wishful thinking and emotional egoism as the rest of humanity (or are even more so), NASDAQ still feels (feels, not thinks) that it can buy the LSE. The current share price is in the neighborhood of £12.25. So the 950p offer is going to have to be considerably sweetened. Pundits figure £11.75 is a starting point for a new bid (which can’t occur for six months, or unless someone else bids for the LSE). By withdrawing the bid on March 30, the NASDAQ just managed to raise the price it will have to pay by 25% or so for starters.

There has been some talk, especially since the withdrawal, of the LSE-NYSE move happening soon and being followed by a takeover of the Tokyo Stock Exchange. This would create the potential for a 24-hour trading exchange that couldn’t be rivaled by a roll-up strategy. Any rival would have to be built almost from the ground up. NASDAQ-Frankfurt-Singapore just doesn’t have the allure.

Pure and simple, to outsiders like this journal, it looks like NASDAQ’s management is engaged what the Scots call “havering,” a lovely participle that means “dithering.” Someone who holds a piece of NASDAQ needs to sit down with management and explain that buying or not buying the LSE is nowhere near as expensive as changing one’s mind has been. There isn’t a business strategy here; it’s management second guessing itself.

© 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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