Could a Nasdaq-LSE merger be in the works?

Carl de Souza/Reuters

New chief executive of the London Stock Exchange Xavier Rolet poses for the media during a photocall outside the London Stock Exchange.

By Luke Jeffs

LONDON – The London Stock Exchange should consider a tie-up with Nasdaq OMX to secure its place as a global competitor, after its failed bid for Canadian group TMX made it vulnerable as a takeover target, investors and market participants said.

Nasdaq has been in the spotlight since the LSE pulled its US$3.5-billion bid for Toronto stock exchange operator TMX, leaving the LSE without a partner at a time of frenzied takeover activity among global exchanges.

“The LSE needs to do something, because as the other exchanges get bigger they get smaller, which can only lead to them being swallowed up,” said a senior trader at an international broker in London.

A source close to the firms said that Nasdaq — lead by veteran Robert Greifeld — has not yet opened talks with the LSE, whose Chief Executive Xavier Rolet only took the helm at the centuries-old exchange in 2009.

But it could come under pressure to do so if shareholders approve Deutsche Boerse’s US$10-billion bid for NYSE Euronext this Thursday, opening the way for the creation of world’s top exchange group.

“The LSE is being marginalised and if Deutsche Boerse/NYSE goes ahead, I wonder how much resistance the LSE will have to a bid,” said a managing director at a global investment bank.

Deutsche Boerse needs shareholder approval before it and its merger partner NYSE Euronext can turn their attention to European competition authorities, who are closely watching every move of the rapidly integrating industry.

Nasdaq tried to derail the Boerse/NYSE deal in April by launching a higher counterbid of US$11.2-billion for NYSE, prompting a rejection from Nasdaq’s hometown rival.

But U.S. regulators shot down the plan in May, fearing the merger would have given the combined group a monopoly.

That left Nasdaq on the sidelines, sparking speculation it might launch what would amount to the third bid for LSE in its history, after a Canadian consortium of banks and funds known as the Maple Group scuppered the LSE’s bid for TMX.

Nasdaq became the fifth firm to bid for the LSE in less than a decade in 2006, when it offered 9.50 pounds a share, but the offer was immediately rejected by LSE management.

It then raised its bid to 12.43 pounds a share in its second approach in November 2006, but the offer was again resisted by LSE’s bosses before being voted down in early 2007.

LSE shares have risen 22% to a year-high of 10.48 pounds since Nasdaq’s NYSE bid was knocked back more than six weeks ago. They were trading 1.8% higher by 1218 GMT.

“I think it (an approach) is likely. (Greifeld is) an ambitious guy with a track record. I think there is pressure for some cross-border activity, and more pressure than there was,” said one large LSE shareholder.

There has been a swathe of exchange deals in the past six months, even if few are still live.

“Exchanges need to consolidate to generate economies of scale and enable them to compete more aggressively,” said Andrew Bowley, managing director, head of electronic trading at Nomura.

The LSE and Nasdaq both declined to comment.

© Thomson Reuters 2011