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NASDAQ turns to Asia, Europe after failed bid

"[Greifeld has] built up so much expectation that if he were to abandon Europe there would be very strong disappointment among shareholders."

David Easthope, analyst at the Celent business consultancy

Having failed in its US$5.3 billion hostile takeover bid for the London Stock Exchange (LSE), he NASDAQ Stock Market Inc is scrambling to lay out a European strategy that will appease its shareholders and ensure it will not be left behind as other major exchanges consolidate.

The world's largest electronic equities exchange was dealt a crushing defeat on Saturday by LSE shareholders who overwhelmingly opted not to accept the bid. NASDAQ's dogged pursuit of the British bourse lasted almost a year and left NASDAQ empty-handed as rival operators NYSE Group Inc and Euronext NV integrate into the first marketplace to span the Atlantic.

Analysts said NASDAQ CEO Robert Greifeld was under intense pressure from investors to cut a deal that would keep his exchange competitive. Wall Street will get a glimpse at Greifeld's next move when he speaks to analysts after the NASDAQ reports third-quarter earnings today.

"He's built up so much expectation that if he were to abandon Europe there would be very strong disappointment among shareholders," said David Easthope, an analyst with the business consulting firm Celent. "Shareholders are looking for them to execute on two strategies: Get your European strategy in place and simultaneously execute one in Asia."

And that is what the New York Stock Exchange accomplished.

So far this year, the Big Board closed the deal to buy Paris-based Euronext, secured a stake in India's National Stock Market and embarked on a broader alliance with the Tokyo Stock Exchange that could lead to a combination.

There was also speculation that NYSE chief executive John Thain might take advantage of NASDAQ's failed bid to make his own run at the LSE, either through an acquisition or most likely a broad alliance.

The NYSE, which declined to comment about such a deal, would face not only competition issues in Europe but also be forced to contend with the nearly 30 percent stake in the London exchange that NASDAQ still holds.

Meanwhile, a spokesman for the LSE told reporters in London that the exchange was already working on a strategic alliance with its Tokyo counterpart.

The fierce rivalry between the NYSE and NASDAQ is palpable. They are fighting for market share in the US, where regulations allow stocks listed on one exchange to be traded on another. They have also been gunning for more stock listings, sometimes persuading companies to defect from one to the other.

NASDAQ has bragging rights for the speediest stock executions, but the NYSE's recent introduction of electronic trading was designed to challenge that.

Until the defeat on Saturday, Greifeld had had a string of successes at NASDAQ. He took a market that was once run by the country's broker-dealers and turned it into one of Wall Street's hottest public companies, bought electronic trading platform Instinet for its technology and took trades away from the NYSE.

"Bob has done a great job for shareholders," said Glenn Hutchins, a NASDAQ board member whose private equity firm Silver Lake Partners is a major shareholder of the exchange. "He took over an exchange that essentially had no value and it now has billions. He's generated a huge amount of volume because it has the best technology and the lowest cost, and is taking market share from the NYSE."

Hutchins views NASDAQ's situation with the LSE as "win-win." It still has the potential to take over the LSE down the line but would profit if another bidder came in and bought the exchange at a higher price.

NASDAQ, which has pledged to shareholders that it would pursue only deals that were strategic fits and would almost immediately reap shareholder value, stood by its claims the LSE was overvalued and refused to increase its bid.
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