Nasdaq Seeks Higher Ceiling

The Nasdaq (NDAQ) is making room for private-equity investors.

In a filing last week, the company said that it may grant Hellman & Friedman and Silver Lake Partners an exemption from a 5% voting restriction placed on Nasdaq shareholders.

"Our board of directors may waive the application of the 5% voting limitation to persons other than brokers, dealers, their affiliates, and [other] persons," the filing said. "In the event that the board of directors approves an exemption from the 5% voting limitation ... and seeks the concurrence of the SEC with respect thereto, we have agreed to grant Hellman & Friedman and Silver Lake Partners, holders of our 3.75% convertible subordinated notes, a comparable exemption from such limitation."

Under Securities and Exchange Commission rules, shareholders of Nasdaq cannot have more than a 5% voting right at the company, no matter how many shares the investor may own. The SEC put the restriction on the Nasdaq in 1999, when the company first began the process of going public.

The original impetus for the rule was to ensure the company would not be purchased by industry participants, such as broker dealers, which could have caused conflict of interest issues, according to a Nasdaq spokeswoman. The company is also considered a "public institution," according to the spokeswoman, giving the SEC another reason to restrict voting power.

If the Nasdaq does loosen its restrictions on its shareholders, which is subject to SEC approval, private-equity partners Hellman & Friedman and Silver Lake would be beneficiaries. In the Nasdaq's most recent proxy, Hellman & Friedman owns 20.9% of the company's voting shares and Silver Lake owns 12%. Wellington also owns 12% of the company's stock. All of the funds, however, have only a 5% voting share each.

The Nasdaq may be carving out a path for Hellman & Friedman and Silver Lake to become private-equity partners in an acquisition of the London Stock Exchange, according to some people close to the company. Private-equity investment may be necessary if the company decides to launch a bid for all of the LSE, given the amount of debt the Nasdaq recently incurred to acquire the 25% stake. That debt was recently downgraded to junk status.

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