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Nasdaq to acquire OMX in Borse Dubai deal

Nasdaq Stock Market Inc. and Borse Dubai have reached a deal under which Nasdaq will take over Nordic bourse operator OMX AB, while Borse Dubai acquires just under 20 percent of Nasdaq and 28 percent of the London stock exchange.
/ Source: The Associated Press

Nasdaq Stock Market Inc. struck a complex deal to sell a 20 percent stake to the state-owned Borse Dubai in return for control of Sweden's leading stock market, but the plan met with some questions from U.S. politicians concerned it would raise security issues.

The sale of the Nasdaq stake is part of a flurry of cross-border dealmaking unveiled Thursday that holds potential to remake the already shifting landscape of global stock exchanges.

If enacted, the Nasdaq deal would let the exchange meet a long-held goal of planting a flag overseas as its larger rival, the New York Stock Exchange, did this year with the acquisition of Paris-based Euronext.

Nasdaq's plan would allow it to sidestep a further bidding war with cash-rich Borse Dubai for Sweden's OMX AB while giving Dubai footholds in both Nasdaq and the London Stock Exchange.

Under the complex deal, Nasdaq would pay Borse Dubai $1.72 billion in cash and Borse Dubai would get a 19.99 percent stake in Nasdaq along with two of 16 board seats in a combined Nasdaq-OMX.

Nasdaq in turn would hand over most of its stake in the LSE to Borse Dubai.

Borse Dubai's voting rights at Nasdaq would be limited to 5 percent, which could help assuage any concern that a Middle Eastern government-controlled entity would for the first time own a sizable chunk of a U.S. exchange.

Dubai, a city-state within the United Arab Emirates, has been an aggressive suitor of Western businesses and tourists as it seeks to diversify its economy beyond its oil wealth, which has helped bankroll a huge economic boom there.

However, a potential obstacle to the complicated deal arose when a group from Qatar said Thursday it became the largest stakeholder in the London exchange. It is unclear whether Qatar _ which shares Dubai's ambitions for growth _ would try to disrupt Borse Dubai from taking the London stake from Nasdaq. Qatar has also acquired a 10-percent stake in OMX, the Swedish exchange said Thursday, raising the possibility that Qatar could try to spoil Borse Dubai's bid for OMX.

If Qatar doesn't try to disrupt the plans announced Thursday, two separate, state-owned investment vehicles could control nearly half of the 300-year-old LSE, Europe's largest exchange. The LSE, which has fought off a multitude of bids in the past few years, had no immediate comment on the Nasdaq-Borse Dubai deal, but said it welcomed the purchase of a stake by the government of Qatar.

The transactions are subject to approval by shareholders and regulators in Europe and the United States. Nasdaq and Borse Dubai said the agreements had unanimous support on both boards.

Political scrutiny could complicate the desires of the acquisitive exchanges, however.

U.S. Sen. Charles E. Schumer, D-N.Y., chairman of the Joint Economic Committee and a senior member of the Senate Banking Committee, expressed doubts about the deal, saying "at this early stage this deal gives me pause." Schumer sent a letter to the Treasury Department seeking a review of the deal.

However, President Bush told reporters at a wide-ranging news conference in Washington that he was concerned protectionism could hamper economic growth.

"We're going to take a good look at it, as to whether or not it has any national security implications involved in the transaction. And I'm comfortable with the process to go forward," Bush said.

House Speaker Nancy Pelosi, D-Calif., said while she would want to learn more about the deal, the Nasdaq plan didn't appear to raise the same concerns as an effort 18 months ago by another state-owned company in Dubai to purchase operating rights at six U.S. ports.

That proposal touched off a firestorm of protest in Congress, which ultimately squelched the deal. In the aftermath of the controversy, Washington passed a law requiring that investments by foreign state-owned companies undergo an additional 45-day investigation by government officials, on top of a standard 30-day review.

Legal experts said the transaction will face scrutiny by U.S. government agencies and on Capitol Hill, though it's too early to tell whether steps will be taken to scuttle the deal.

Ronald Meltzer, an attorney at law firm WilmerHale, said political concerns about the Dubai firm's investment are likely due as much to the company's Middle East location as any innate security concerns about the deal.

But Nasdaq Chief Executive Bob Greifeld said the initial reception to its plans had been a warm one.

"We've had some outreach with politicians today and the response has been very favorable," he said on a conference call.

Nasdaq said it would submit the deal to the federal Committee on Foreign Investment, or CFIUS, which reviews acquisitions of American companies by foreign entities for security concerns.

Greifeld told reporters in Stockholm he believed the U.S. Securities and Exchange Commission would be "positive" toward the agreement.

"It's a good transaction for the U.S. capital markets system and it will make sure that Nasdaq is a key player in the global consolidation," he said. "It's our job to communicate that to legislators and regulators, and clearly."

But beyond any political headwind in the United States, the latest round of global dealmaking only furthers a rapid consolidation among the world's exchanges as the rise of electronic trading threatens to further squeeze profit margins.

With such concerns in mind, Nasdaq previously said it would sell its LSE stake after it failed to take over that exchange.

Still wanting a footprint overseas, Nasdaq has turned its focus to OMX, which operates stock and derivatives exchanges in Sweden, Denmark, Iceland, Finland and in the Baltic countries of Estonia, Latvia and Lithuania.

Cubillas Ding, a senior analyst in London at the financial research and consulting firm Celent, said that Borse Dubai could harbor ambitions of setting up an entity that would eventually hold a group of global exchanges much like the combination of the NYSE and the exchanges of Euronext.

"It's hard for me to see what really, strategically, they're trying to do," he said. "They have the money but whether the thinking behind it is clear, I'm not so sure. The exchange landscape is going through quite an uncertain period."