December 12, 2006 in Work

Hostile Bid for London Stock Exchange

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Not to talk shop, but as everyone is now realizing, Sarbanes-Oxley and other US market regulations has made it less attractive for companies to seek capital on US Stock Exchanges. As a result, European exchanges like the London Stock Exchange and its subsidiary Alternative Investment Market (AIM) are in the midst of a renaissance as more and more companies are choosing to list over here. Therefore, no one is really surprised that NASDAQ continues its hostile approach for the London Stock Exchange.
With that, it will be interesting to see whether or not NASDAQ is successful. More importantly if the Prime Minister moves forward with plans to protect the London Stock Exchange from having to comply with Sarbanes-Oxley if it falls under American rule. As if it does, the London Stock Exchange will loose its competitive edge.

Nasdaq launches £2.7bn hostile bid for LSE
By Sarah Spikes and Norma Cohen
Financial Times, Published: December 12 2006 08:26 | Last updated: December 12 2006 10:05
Nasdaq on Tuesday formally launched its long-anticipated £2.7bn ($5.3bn, €4bn) hostile bid for the London Stock Exchange, as the US exchange seeks to buy the 71.25 per cent of the exchange that it does not already own.
Nasdaq set January 11 as the first closing date of the offer – which it can extend to February 10 – adding that the £12.43 a share on the table was its final offer.
However, Nasdaq revised down the minimum number of share of acceptances needed for the deal to succeed to 50 per cent plus one share, from 90 per cent. Given that Nasdaq already owns 28.75 per cent of the company, the lower acceptance level means Nasdaq needs only a little more than 21.25 per cent to get to over 50 per cent and secure the deal.

The LSE responded by reiterating its rejection of the offer, which Nasdaq originally put forward on November 20.
“The board unanimously rejects Nasdaq’s offer as it substantially undervalues the exchange and fails to reflect its unique strategic position and the powerful earnings and operational momentum of the business,” the LSE said in a statement.
In early trade, the market appeared unconvinced that the offer would lead to a deal. Shares in the LSE fell 3p to £13.17, giving it a market capitalisation of £2.81bn.
Bob Greifeld, Nasdaq chief executive, said: “We continue to believe that the offer of £12.43 represents a full and fair value for LSE shareholders, taking into account both the success of the business but also the new competitive threat which the LSE will face in 2007 and beyond.”
Competition among exchanges has intensified in recent months, with fee wars eating into profit margins and forcing exchanges to consider combining efforts. In addition, a group of global investment banks is considering creating its own trading platform to rival exchanges.
Nasdaq last month announced its intention to bid £12.43 a share, saying it reserved the right to increase the bid if a rival bidder emerged or if the LSE’s board and Nasdaq agreed on a higher price that the board would then recommend to shareholders. It repeated those conditions on Tuesday.
If the bid expires without a resolution, Nasdaq will be left with its 28.75 per cent stake in the LSE and will be blocked by the UK’s Takeover Code from making another bid for a year.
Nasdaq’s approach direct to shareholders comes after the LSE’s board has rejected two offers from Nasdaq this year, and underscores the aggressive approach taken by the US exchange in recent months.
The US company’s advisers have said that Nasdaq had become convinced the LSE would not consider any bid at any price, and therefore saw no incentive to raise the offer.
While the £12.43 a share offer formalised today is not seen as likely to succeed, some analysts have said it could prompt shareholders – many of them hedge funds that bought the stock in anticipation of a deal – to increase the pressure on the LSE’s management to re-enter talks with Nasdaq.
The second largest shareholder in the LSE after Nasdaq is US hedge fund manager and corporate raider Sam Heyman, who owns 9.13 per cent of the company. Hedge funds and analysts estimate that up to half of the LSE’s shares may now be held by merger arbitrage funds.

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