Nasdaq's dream of buying its bigger, older and more famous rival, the New York Stock Exchange, has been shattered by a ruling from the US competition authorities, which said that combining the country's two main stock markets would create an unacceptable monopoly.
The Justice Department's speedy and definitive conclusion confirmed what the NYSE's parent company had said all along, namely that the Nasdaq $11bn (£7bn) bid was "an empty vessel" that could not win regulatory approval. NYSE Euronext is instead pursuing a merger with Deutsche Börse which would create the world's largest exchange group and a powerhouse in European derivatives trading.
Nasdaq was bidding jointly with IntercontinentalExchange, a derivatives trader which would have taken over the derivatives side of NYSE Euronext, including London-based Liffe. The pair formally withdrew their offer yesterday, leaving Nasdaq without a dance partner in this latest wave of global exchange consolidation.
Investor speculation immediately turned to other potential bid targets for Nasdaq, or whether the company might now be vulnerable to a takeover approach.
Bob Greifeld, the chief executive of Nasdaq OMX, said he was "surprised and disappointed" by the decision. "We saw a unique opportunity to create more value for stockholders and strengthen the US as a centre for capital formation amid an ongoing shift of these vital activities and jobs outside of our country."
In the end, playing the nationalist card failed to work for Nasdaq. Even Chuck Schumer, the populist Senator for New York, indicated that he supported the German takeover deal, citing fears of higher job losses if Nasdaq bought the NYSE.
For the Justice Department, the concern was about allowing one company to have a stranglehold over US company listings. Christine Varney, head of its antitrust division, said: "The acquisition would have removed incentives for competitive pricing, high quality of service, and innovation in the listing, trading and data services these exchange operators provide to the investing public and to new and established companies that need access to US stock markets."
Deutsche Börse's $9bn bid has regulatory hurdles of its own to overcome, but the two companies signalled their intention to press ahead with a combination even before the outcome of competition reviews in Europe. The two companies' shareholders are due to vote on the deal in July.
Joaquin Almunia, vice president of the European Commission responsible for competition policy, indicated in a speech yesterday that the review could be intense. "We should prevent that any one entity or group controls essential infrastructure – be it a trading platform, a clearing platform or a pre-trading service – to the benefit of a restricted few," he said, although he did not refer directly to the NYSE–Deutsche Börse deal.
Nasdaq shares rose on relief it would not be issuing new stock and debt to pay for a deal, but analysts began speculating on its next move. The most obvious target, they said, was the LSE, particularly as it, too, appears to have had its bid plans thwarted.
LSE: bidder or bid target?
Shares in the London Stock Exchange rose almost 7 per cent last night amid speculation that it may end up as a target for the US exchanges Nasdaq and ICE after a group of Canadian financial institutions challenged its planned merger with the Toronto-based TMX.
Maple Group Acquisition Corporation, a consortium of Canadian banks and pension funds, has tabled a $3.7bn (£2.3bn) takeover proposal in an attempt to derail the LSE's ambitions.
Luc Bertrand at National Bank of Canada, which is part of Maple, said: "It presents a clear path to creating additional value by optimising the balance sheet, margin expansion, improved multiple potential and the ability to pursue international growth opportunities."
Although LSE and TMX stood by their agreement, the Maple proposal would please Canadian critics who have bemoaned the possibility of a national institution falling into foreign hands. Maple said its plans would not need to be approved under the Investment Canada Act, which would require the LSE and TMX to show that their merger was of "net benefit" to the country. The legislation applies only to deals involving foreign companies and was recently invoked to block a bid by the miner BHP Billiton for Canada's Potash Corp.