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Nasdaq is undeterred

The U.S. market needs London deal to retain investor confidence

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Pedestrians pass the Nasdaq site. The London Stock Exchange spurned a fresh takeover bid from Nasdaq, saying it "substantially undervalued" the LSE.

Pedestrians pass the Nasdaq site. The London Stock Exchange spurned a fresh takeover bid from Nasdaq, saying it “substantially undervalued” the LSE.

Mark Lennihan, Associated Press

NEW YORK — Nasdaq Chief Executive Robert Greifeld was undeterred Monday by the London Stock Exchange's rejection of a $5.1 billion unsolicited bid to buy Europe's biggest equity market.

He has to be. The second-largest U.S. stock market has fewer options now that NYSE Group Inc. is poised to become the first trans-Atlantic equities exchange through its proposed combination with Euronext NV.

Greifeld became Nasdaq CEO three years ago with a mandate to revitalize an enterprise pummeled by an ugly bear market and to expand its reputation beyond being a home for technology issues like Microsoft Corp. He needs this deal to convince investors that Nasdaq won't fall behind as financial markets consolidate.

"They are the crown jewel of the European marketplaces," Greifeld said of the LSE in a conference call with reporters. "We believe this is a powerful asset that is a natural partner with the Nasdaq. There is an increasingly clear path to the end game."

A Nasdaq-LSE combination would create the world's largest exchange by number of listings, with more than 6,400 companies carrying a market value of $11.8 trillion. Monday's bid was the second Nasdaq has made since March and follows offers made by Deutsche Boerse AG, Sweden's OM Gruppen AB and Australia's Macquaire Bank Ltd. since 2000. All have been turned down.

The swift rejection from LSE Chief Executive Clara Furse was expected; she said Nasdaq's offer undervalues the British exchange and "fails to recognize the outstanding growth record and prospects of our group on a stand-alone basis."

Greifeld, who calls the current offer "fair and full," is strengthening Nasdaq's position by making his company the LSE's biggest shareholder. His company has accumulated a stake in the LSE since its first bid was rejected, and increased its holdings Monday to 28.75 percent, having obtained 7.1 million shares from what he described as a "long-term shareholder."

Though the intention is to get London's board to sit down for talks, the Nasdaq can turn its bid hostile and lobby other LSE shareholders. Obtaining a 50 percent stake in the London Stock Exchange — which the Nasdaq will be able to pursue after a 30-day waiting period imposed by the UK Takeover Panel — would give the Nasdaq control of the board and allow it to virtually approve its own offer.

During the conference call, Greifeld stated, "we are not selling our shares," an indication he has no intention of backing down, even if there is another bidder for the LSE. The comment seemed directed at Furse, who still could seek out a white knight offering from one of the LSE's previous suitors or a new one.

Both Deutsche Boerse and OM Gruppen declined to comment about their interest in the LSE.

"He's made a really smart move, and it's a different competitive landscape than it was when they first bid on them," said Niamh Alexander, an analyst with CIBC World Markets. "This is clearly a bid that's appealing directly to the shareholders, and that might bring the board and management to the table. They've made it known there is more interest out there."

The Nasdaq has not negotiated with the LSE since the summer, and those discussions were only as a shareholder and not a potential acquirer. Nasdaq Chairman H. Furlong Baldwin informed his LSE counterpart that another offer was being made just before it was disclosed publicly Monday.

Investors have been given few specifics about the deal, mostly because the Nasdaq hasn't been able to yet look at the London Stock Exchange's books. Nasdaq executives estimate the deal would increase its per share earnings in 12 to 18 months and that the two exchanges' similar trading platforms would create synergies to cut costs.

Securities markets worldwide have announced a flurry of deals during the past few years, the highlight being the New York Stock Exchange's move on Euronext. The exchanges are attempting to appease investors seeking lower costs for trades, and electronic trading that crosses time zones.

It also comes at a time when new markets are being created to lower costs for investors, and for the banks that do business with the exchanges. Last week, seven investment banks that include Citigroup Inc. and Goldman Sachs Group Inc. announced plans to start their own pan-European equity trading platform to challenge bourses that already control the market.

That makes it even more important for Greifeld.

"He's a proven guy, but I think this is critical for the company and the stock performance," said Richard Repetto, an analyst with Sander O'Neill & Partners. "This is the biggest issue the company faces right now."

Greifeld's tenure at the Nasdaq has not been without controversy. His first day was hallmarked by firing most of the exchange's top management, then putting a long-anticipated initial public offering on hold. He cut a long list of ventures, both overseas and in the U.S., including a joint venture to trade stock futures in London, and plans to create Nasdaq Europe.

He then set about a complete makeover for the exchange to boost profitability and gain market share from the NYSE. The IPO finally happened in February 2005, and two months later the company unveiled its $934.5 million acquisition of the Instinet electronic exchange from Reuters PLC.

Though some analysts contend the LSE could be a make-or-break deal, Greifeld does appear to have other options. There is some talk that Nasdaq could bypass Europe and head directly to Asia, an area the NYSE would like to enter once its Euronext merger is completed.

"I've always got a Plan B," Greifeld said without elaborating. "And, sometimes Plan B can work out better than you could have hoped for."