Gulf rivals snap up nearly
half of the London Stock Exchange
· Sovereign-backed firms go on a spending spree
· Bush ‘comfortable’ with Dubai stake in Nasdaq
The following correction was printed in the Guardian’s Corrections and clarifications column, Saturday September 22 2007
In the article below we reported that Borse Dubai and Qatar Investment Authority had purchased shares in the London Stock Exchange and mentioned that nearly all of the stake purchased by Borse Dubai had been previously controlled by Nasdaq. We said that Nasdaq had auctioned the stake and that this had attracted offers from, among others, Singapore’s Temasek Holdings. Temasek has asked us to make clear that it did not, at any time, make any offer, nor did it participate in any bidding for the 31% Nasdaq stake.
The London Stock exchange is once again at the centre of a takeover struggle after close to half of its shares were snapped up yesterday by rival sovereign-backed firms from Dubai and Qatar.
Shares in the exchange operator closed up 234p, or 16%, at £16.87 after details of the power struggle emerged. Borse Dubai now holds 28% of the LSE and Qatar Investment Authority (QIA) holds 20%.
The clash over the LSE was one of a handful of international flashpoints to flare up yesterday as pressure mounts for further consolidation among the world’s leading stock exchanges. There were major developments in New York, Sweden and the Middle East as well as in London.
All were precipitated by a deluge of petrodollars from Doha and Dubai, both of which are rapidly diversifying away from a reliance on oil and gas. The Gulf cities – separated by less than 250 miles of water – are vying to become the Middle East’s pre-eminent financial centre.
In London, Borse Dubai has taken almost all of the stake previously controlled by Nasdaq. Borse Dubai paid £790m, or £14.14 a share, for the 28% stake.
Nasdaq held an auction for the stake, attracting offers from other sovereign fund-backed bidders including QIA and Singapore’s Temasek Holdings. Having failed to win the stake, QIA yesterday announced it had raided the market. It said it had acquired a 20% stake in LSE – with much of its shares believed to have been acquired at more than £15.80 from US hedge funds.
In a statement QIA said: “This is a key investment for QIA and one that it intends to hold for the long term.”
LSE said it was “very happy to welcome the QIA as a long-term investor in the company”, noting the two firms already had strategic links in Doha. The exchange made no comment about Borse Dubai.
In two weeks’ time, however, a group of Italian banks is expected to take over as the LSE’s largest shareholder, with about 28% of shares, on completion of the London exchange’s acquisition of Borsa Italiana. Borse Dubai and QIA interests will be diluted down to about 20% and 14% respectively.
QIA had been tipped as the front runner in the auction for the Nasdaq stake in LSE, but the US exchange is believed to have favoured Borse Dubai because of a complex side agreement that in effect ends the bidding war between the two for OMX. A cooperative approach should see the Stockholm-based exhange group end up under Nasdaq ownership, Borse Dubai take a 28.4% interest in Nasdaq and the US firm invest in Borse Dubai operations, including the introduction of software to Dubai exchanges.
“The combination will create the largest global network of exchanges and exchange customers linked by technology,” said Nasdaq’s boss, Bob Greifeld. “It’s a triple-win transaction.”
But QIA has been quick to challenge plans for a series of international links between Nasdaq, Dubai and – potentially – OMX and the LSE. As well as challenging Borse Dubai in London, QIA also raided the market in Stockholm, buying up almost 10% of shares in OMX. It urged shareholders in the exchange group to take no action on the offer from Nasdaq/Borse Dubai. The Qatari market raid is believed to include transactions at 245 kronor a share – well above the value of the SK230-a-share offer from Borse Dubai.
Shares in OMX closed up 7.7% at SK259 after a record day’s trading. The equivalent of a third of all OMX shares changed hands.
In the US, meanwhile, some politicians were again questioning the wisdom of allowing a sovereign-backed firm to take a dominant interest in a strategic US asset. President George Bush said: “We are going to take a good look at it, as to whether it has any national security implications … I’m comfortable with the process.” A routine review will be carried out by the US Committee on Foreign Investments.
The committee was criticised last year for approving an acquisition by Dubai Ports World of the British firm P&O, which included several US ports. The ports were sold on to a US firm nine months later after intense political pressure.
Under the terms of its deal with Nasdaq, Borse Dubai will hold 20% of the US exchange group directly, with a further 8.4% held in trust. Mr Greifeld said he did not expect the deal to be blocked by issues of national security because, like all shareholders in US stock exchanges, Borse Dubai cannot hold more than 5% of voting rights.
Backstory
This is not the first time the London Stock Exchange has found itself at the eye of a takeover storm. In recent years it has fought off unwanted overtures from Deutsche Börse, Australia’s Macquarie Bank, Euronext and – twice – Nasdaq. Seven years ago a failed bid from OMX, then called OM, valued LSE at £1bn. Since then, the highest offer has come from Nasdaq, valuing the exchange at £2.7bn. It was defeated in February. Yesterday, the prospect of yet another takeover tussle – this time between two oil-rich, sovereign-backed Middle Eastern firms – sent shares soaring again. The business is now valued at almost £3.4bn. Unlike many other leading exchanges around the world it enjoys no protection from foreign ownership.
