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Nasdaq buys stake in London Stock Exchange

The Nasdaq Stock Market Inc. said Tuesday it has acquired a stake of nearly 15 percent in the London Stock Exchange.
/ Source: The Associated Press

The Nasdaq Stock Market Inc. said Tuesday it has acquired a stake of nearly 15 percent in the operator of the London Stock Exchange.

The New York-based Nasdaq said in a statement that it had acquired more than 35.4 million shares of the London Stock Exchange PLC from Threadneedle Asset Management Ltd. and another nearly 2.7 million shares to take its holding to 38.1 million shares, or 14.99 percent, of the LSE’s outstanding shares. It said the stake was worth 447.7 million pounds ($781.7 million).

The LSE has rebuffed Nasdaq and several other potential suitors in the past few years, saying their offers inadequately valued the exchange.

LSE officials said they had no immediate comment on Nasdaq’s move.

Australia’s Macquarie Bank Ltd., Germany’s Deutsche Bourse AG and Sweden’s OM Gruppen have all failed in their tilts at Europe’s oldest stock exchange.

Nasdaq had previously offered 950 pence per share to gain control of the LSE, but it dropped the 2.4 billion pound ($4.2 billion) bid without explanation late last month.

At the same time, Nasdaq reserved the right to make another offer within the next six months if the LSE agreed to a deal or if a rival bidder emerged.

Exchanges around the world are considering consolidation as they seek to expand beyond their borders to stay competitive and generate new revenue sources.

For the past year, LSE Chief Executive Clara Furse is believed to have been actively hunting for a suitor to speed up growth at her exchange.

A link-up with another exchange would allow the LSE to diversify into derivatives, the high-earning trading instruments of which it currently has little, and give it a separate clearing and settlement system — often used as cash cows to support exchange dealing.

The LSE was beaten in the race to purchase the Liffe derivatives market by pan-European exchange Euronext NV in 2002 and an attempt to combine with Nasdaq in 2002 fell through because of regulatory obstacles.

The stake in the LSE gives Nasdaq a footprint in the European market, said Harrell Smith, a manager of the securities investments practice at research and consulting firm Celent.

“By taking such a large stake in the LSE, Nasdaq will gain a foothold in Europe and will be able to exert considerable influence on the future growth strategies of the LSE. In addition, this purchase leaves Nasdaq well positioned should it choose to increase its holdings and eventually secure a controlling interest in the LSE,” Smith wrote in a note.

Smith said it would be more technologically advantageous for Nasdaq to take a controlling interest in the LSE than the New York Stock Exchange, which is still in the process of implementing its initiative to integrate the floor-based auction market with automated trading.

NYSE Chief Executive John Thain said in January that the exchange wants to play “a leadership role” in the industry’s consolidation, citing the LSE, Deutsche Boerse and Euronext as the companies it was monitoring.