Nasdaq to offload 31% stake in LSE

Nasdaq has hired investment banks to sell its 31 per cent stake in the London Stock Exchange, ending its year-and-a-half-long pursuit of the bourse to focus its attention on sealing its £1.86bn bid for OMX, the Nordic exchange group.

The announcement came on the same day that Nasdaq chief executive Bob Greifeld landed in Stockholm to meet executives at OMX to discuss the progress of his offer. Nasdaq's pursuit of the holding company of seven Nordic exchanges was thrown off kilter last week when Borse Dubai swooped in with a hostile £2bn bid - roughly £150m richer than Nasdaq's offer.

The New York bourse said that of the £800m it expects to pocket from the LSE sale, about £500m ($1bn) would be used to pay down debt. The remainder could be used to buy back its own shares. That would provide a fillip to Nasdaq's share price and help narrow the gap between its bid and Dubai's - just over half of Nasdaq's bid if comprised of shares.

A divestiture would represent the final surrender of Mr Greifeld, who first bid for the LSE in January in 2006 but was spurned, repeatedly, by LSE head Clara Furse. The 31 per cent holding, a vestige of the stake-building Nasdaq carried out in the midst of the bid battle, is set to decrease to 22 per cent once the LSE's takeover of Borsa Italiana goes through.

"Now that the LSE and Borsa Italiana have done their deal, they are rather like the spurned lover at the wedding, and now they've got another battle on their hands," said Bob McDowell, an analyst at the Tower Group consultancy.

But Borse Dubai has a battle of its own. OMX's chairman Urban Baeckstroem labelled its approach "hostile", while Investor AB, the investment vehicle of the billionaire Wallenberg family, said that it liked the industrial logic of the Nasdaq tie-up and that the higher price was "not sufficiently attractive."

The move is likely to improve Nasdaq's credit rating, which is lower than those of exchanges of a similar profile because of the debt it took on to pay for LSE shares.

"Nasdaq does not have a particularly good credit rating, so it is going to have to pay quite a lot for more funds because of that. This is a prudent move to address their financial future given the contracting credit markets," added Mr McDowell.

The American exchange's deal for OMX, announced in May, was recommended by the target's board and has since been wending its way through the regulatory hoops of the seven different nations where its exchanges are located.

In its announcement of the LSE sale, Nasdaq said it wanted to unload the holding because the market did not fully appreciate the value that it provided the company. It has hired UBS and JPMorgan to carry out the review.

LSE shares traded up 2.3 per cent on the news, closing the day at £13.01 apiece - about £2 more than the average £11 it paid to accumulate the stake. Investors speculated that the holding could be sold to a single buyer - like Deutsche Börse or a US group such as Chicago Mercantile Exchange - igniting hopes of a fresh bid battle for the sought-after bourse.

Mr McDowell said that was unlikely. He added: "I don't think we'll see a deal in the next two or three weeks. They'll need some time to engineer the right structure to dispose of the holding, and to find people with the appetite. They'll probably have to do it through a placing."