Bloomberg News

LSE Failing Means Rolet Joins Nasdaq Without Merger Partner

June 29, 2011

(Adds response from Singapore Exchange and ICE in sixth paragraph.)

June 29 (Bloomberg) -- London Stock Exchange Group Plc terminated its purchase of TMX Group Inc., marking the third time since April that one of the world’s biggest equity venues failed to close a merger aimed at bolstering growth.

LSE joins Nasdaq OMX Group Inc., IntercontinentalExchange Inc. and Singapore Exchange Ltd. among markets without a partner. Nasdaq OMX and ICE dropped their hostile bid for NYSE Euronext on May 16 after regulators signaled they would block it. Singapore’s bourse lost Sydney-based ASX Ltd. on April 8 after Australian Acting Prime Minister Wayne Swan said the acquisition wasn’t in the national interest.

The rejections may mean this year’s flurry of exchange takeovers isn’t over as executives search for ways to offset declining profitability from equity trading. Nasdaq OMX Chief Executive Officer Robert Greifeld, LSE’s Xavier Rolet and Singapore CEO Magnus Bocker have all said international alliances would make them more competitive.

“LSE will now continue to try to execute strategy and protect market share, but they will struggle to do that,” said Frederic Ponzo, managing partner at London-based GreySpark Partners, which advises financial institutions. “The position to stay independent is becoming less and less tenable. The most likely predator is Nasdaq, but a cooling-off period will likely be in order. It’s the one that would make most sense.”

Nasdaq Rallies

Nasdaq OMX shares jumped after the LSE-TMX deal was abandoned, climbing 4.7 percent to $25.14 for the biggest advance since April 1. TMX rose 1.5 percent to C$44.20. European markets were closed for the day once the deal was broken, so LSE shares haven’t reacted yet. The Bloomberg World Exchanges Index that tracks 25 stocks gained 1.1 percent.

Frank De Maria, a spokesman for Nasdaq OMX, declined to comment, as did LSE’s Victoria Brough, Singapore Exchange’s Carolyn Lim and ICE’s Kelly Loeffler.

LSE bowed out after failing to win the support of two- thirds of TMX’s shareholders for its C$3.32 billion ($3.42 billion) purchase of Canada’s main stock exchange. “It is clear that the two-thirds threshold required to approve the merger would not have been achieved,” TMX said in a statement.

Shareholders of the Toronto Stock Exchange operator were scheduled to decide on the proposal tomorrow. LSE said a majority of shareholder votes cast by proxy supported it.

‘Very Disappointing’

“This is very disappointing for Xavier, and he doesn’t have many places to turn right now,” said Niki Beattie, CEO of Market Structure Partners Ltd., a London-based consulting firm that advises brokers and exchanges. “He has to do a deal. Organic growth won’t do it. LSE is facing a certain future where whatever happens they will be the lesser partner. It’s unlikely though that anything will be imminent.”

LSE’s Rolet, Nasdaq OMX’s Greifeld and Singapore’s Bocker have been frozen out of a wave of exchange consolidation in which more than $20 billion of takeovers have been announced since October, according to data compiled by Bloomberg.

Nasdaq OMX of New York and Atlanta-based ICE dropped their bid for the operator of the New York Stock Exchange on May 16 after U.S. regulators threatened to block the deal. The decision spurred a one-day advance of 6.8 percent in LSE, which Nasdaq OMX has tried to acquire three times, and came after LSE’s offer for Canada’s largest bourse was trumped by a group of 13 local banks, pensions and insurers.

Bid Rejected

In February 2007, LSE shareholders rejected Greifeld’s hostile bid when the LSE was valued at $5.33 billion. It was one of five takeover offers that LSE’s former CEO Clara Furse fended off in two years. LSE is now worth $4.16 billion. Nasdaq OMX currently has a market value of $4.44 billion.

Greifeld first set his sights on LSE about five years ago to create what would have been the first trans-Atlantic stock exchange. In March 2006, he offered 2.4 billion pounds ($3.9 billion) for the London-based bourse in what the company called an “attractive offer.” LSE rejected that bid, which led to Greifeld’s failed takeover attempt in 2007.

In July 2002, before Greifeld joined Nasdaq OMX, talks between the two broke down after U.S. and U.K. regulators failed to agree on how to oversee the combined market.

Nasdaq OMX owns 12 equity and options markets in the U.S. and Europe including the Nasdaq Stock Market, Nasdaq Options Market and venues in Sweden, Denmark, Finland, Iceland, Estonia, Latvia and Lithuania. The combined market capitalization of Nasdaq OMX and LSE is $8.6 billion, more than Singapore Exchange and ASX.

“Senior management at the exchange will continue to have their calendars cluttered with exchange merger discussions,” Robert Young, chief executive officer of Liquidnet Canada Inc., said of TMX. “The best path to increasing value for shareholders is to drop costs and the easiest way to drop costs is to merge exchanges.”

--With assistance from Nina Mehta and Whitney Kisling in New York and Sean Pasternak, Doug Alexander and Matt Walcoff in Toronto. Editors: Chris Nagi, Nick Baker

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net.

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Andrew Rummer at arummer@bloomberg.net.


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