Banking & Finance

Will Saber Rattling Kill NASDAQ/OMX/LSE/Dubai Deal? (NDAQ, NYX, C)

The NASDAQ Stock Market (NASDAQ:NDAQ) has been in a long hunt over how it plans to grow and compete in a new world of mega-exchanges, and frankly its second place status in the U.S. for stocks is one that it would acknowledge is far from that of the NYSE Euronext (NYSE:NYX).  It was unsuccessful in its buyout of the London Stock Exchange.  Then it focused on the Nordic OMX, only to get a rival bid over OMX from Borse Dubai.  The NASDAQ finally reached a deal that can be secured, but the much needed help that arrived may have been slapped in the face by observers.

The NASDAQ yesterday reached a mutual deal with Borse Dubai that will allow it to gain control of the OMX.  In exchange, NASDAQ is giving up most of its holding (appears to be a 28% stake of 31.5%) in the London Stock Exchange.  But NASDAQ is also kicking in a 20% stake of its own stock.  The NASDAQ purchase price would be equivalent to about $41.00 per per share, and it appears this is for only a 5% voting stake with an ‘independent trustee’ holding the rest. NASDAQ will also get a stake in Borse Dubai, but we are going to stop there. because this is starting to sound like a monopoly game where the second and third tier players gang up on the likely winner. 

There are just two problems: the Qatar Investment Authority has steppedin to potentially give a higher bid for the OMX with a 9.98% stake androughly a 20% of the LSE.  The bigger problem is that Senate BankingCommittee Chairman Christopher Dodd (D-Conn.)  is out saying thisrequires close review, and Senator Schumer is saying it raises seriousquestions about allowing foreign governments to acquire U.S. financialexchanges.  Hopefully this is just political jawboning and saberrattling.

Many in the markets have the feeling that uncheckedand fettered capitalism is the best path to prosperity.  That may betrue and it might not, but some sense has to be put into the equationon both sides.  If workers are competing against child and slave labor,that isn’t fair; but conversely if governments will not even allowstakes to be held in companies then the pendulum is going to far thatway too.

This is not the Dubai Ports deal, which was a highlypoliticized event.  This is a small stake with limited voting rightsand influence, and to top it off in case the insulated boys in D.C.didn’t realize it then they should look closely: NASDAQ NEEDS HELP, BIGTIME.  The boys in D. C. didn’t exactly go out and claim how the NYSEacquisition of Euronext to become NYSE Euronext (NYSE:NYX) might beunfair to the Europeans, and that was for all practical purposes acomplete power shift and total buyout. 

The single largestshareholder in the mega-giant bank Citigroup (NYSE:C) is Al-Waleed binTalal, and that wasn’t a horrific scare when they needed it.  Trying tocalculate how many US-workers (not including the private securityworkers) and the tens (or hundreds?) of billions of dollars that we getannually in Middle-Eastern infrastructure construction and maintenancecontracts is beyond our own databases.  It’s also beyond that of the U.S. Labor Department because if you see the calculations they make you know they are using a single abacus that always double-counts in favor of the house.

Some protectionism andsome regulation is actually OK for everyone, because if everyone is uncheckedand has no rules then there will be a bad end.  But total protectionism(particularly over certain stakes) is almost equally as bad and will ultimately becounter-productive.  If the D.C. regulators would accept the state ofthe world for what it is and go ask NASDAQ if this is what it needs,they will hear a resounding “YESSSSS!” back on the phone.

NASDAQclosed up only 1.35% today at $36.51, well short of the $41.00+ termswith Dubai for a small stake and well under the $38.00+ opening pricesbefore the saber rattling started.

Jon C. Ogg
September 20, 2007