London Exchange Rejects Nasdaq's Bid

The London Stock Exchange on Monday spurned a fresh cash takeover bid from Nasdaq Stock Market Inc., saying it "substantially undervalued" the London Market.

Nasdaq, making its second attempt to take over the LSE, offered to buy the more than 70 percent of shares it doesn't already own in a deal which values the London bourse at 2.7 billion pounds ($5.1 billion).

The offer represents a premium of 54 percent on LSE's closing share price March 10, the day before the LSE said it had received an approach, and was the minimum bid the U.S. exchange could make under British takeover rules.

"We believe Nasdaq's final offer fails to recognize the outstanding growth record and prospects of our group on a standalone basis let alone the Exchange's unique global position," said Clara Furse, chief executive of the London Stock Exchange.

New York-based Nasdaq, which accumulated 25.1 percent of LSE shares during a takeover bid earlier this year, offered 1243 pence ($23.56) per share for the outstanding stake. It then announced further purchases which raised its holding to 28.75 percent.

"This is a long game that we're playing, and I'm optimistic we'll engage with the London Stock Exchange board in a relatively short period of time," Nasdaq Chief Executive Robert Greifeld told analysts after being informed of the rejection. "As the process moves along, the likelihood we'll engage with the board increases day by day."

LSE shares traded at 12.92 pounds ($24.48) shortly after the exchanges mid-afternoon announcement.

A combination would create the world's largest equity market by value of listed companies, Nasdaq said, with more than 6,400 quoted companies with a total value of about 6.3 trillion pounds ($11.3 trillion) — a giant ready to slug it out if necessary with a new European exchange which seven major investment banks say they plan to create.

The London Stock Exchange, Europe's oldest bourse, now takes about half of the initial public offerings in Europe including many flotations of Russian and Eastern European companies.

Earlier this month, the LSE reported that first-half net profit more than doubled to 54.1 million pounds (euro80.9 million US$103.2 million), as electronic trading increased 56 percent and income from initial public offerings rose.

"In the year to October, the exchange has underlined its position as the world's primary listing venue with 22.3 billion pounds ($45.3 billion) raised through IPOs, 96 percent more than the same period in 2005 and more than any other exchange so far this year," the LSE in rejecting the Nasdaq bid.

Katrina Preston, an analyst at Bridgewell Securities, had anticipated that the LSE would reject the offer, arguing that it "does not represent sufficient value compared with trading valuations of rival exchanges."

But Fox-Pitt Kelton analyst Andrew Mitchell said the bid was shrewdly timed following last week's slump in the share price below 13 pounds, and that it would be "difficult for London to defend itself."

Earlier this year, Nasdaq made an offer of 9.50 pounds per share for the LSE, but abruptly withdrew in March.

Australia's Macquarie Bank Ltd., Germany's Deutsche Bourse AG and Sweden's OM Gruppen have also all failed in previous overtures to take over Europe's oldest exchange.

Mitchell said Nasdaq has no obvious rivals this time around.

"Deutsche Boerse attempted before at a much lower level and you can't rule them out entirely, but they are an unlikely candidate," he said.

The New York Stock Exchange owner, NYSE Group Inc., agreed in June to pay $9.96 billion for Euronext, which operates the Paris, Amsterdam, Brussels and Lisbon exchanges. The bid subsequently rose to $13 billion.

The combined sales of Nasdaq and LSE would be about $1.4 billion, based on their last set of full-year results. That compares with about $2.3 billion for NYSE-Euronext.

Nasdaq Chairman and Chief Executive Robert Greifeld said he wasn't concerned about last week's news that seven major investment banks — Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc., Merrill Lynch & Co., Morgan Stanley and UBS AG — plan to launch their own European equities exchange next year.

"It's important to note that Nasdaq was not born through a historical monopoly. It has had to compete. We clearly have our competitive instincts engaged," Greifeld told reporters.

Greifeld said Nasdaq would cut transaction fees as trading volumes rise.

"That will be a hallmark of the combined entity," he said.

Analyst David Buik of Cantor Index said the investment banks' plan was a strong reason for a Nasdaq-LSE tie-up.

"The ramifications of dismissing Nasdaq's overtures could be serious," Buik said, adding that bourses must cut their fees to remain competitive.