Nasdaq Presses London Raid

It piles on another 13.8 million LSE shares for $320 million.
Publish date:

Updated from 12:16 p.m. EDT




acquired another 13.8 million shares of the London Stock Exchange, raising its stake to 24.1% and strengthening its hand with other potential suitors.

The total price for the latest purchases was $320.7 million.

The additional shares, which raise the Nasdaq's stake from 18.7%, take its percentage in the LSE above 20%, the threshold at which it can start recording part of the company's earnings on its own financial statements. The purchases reinforce a signal to other potential suitors, including the

NYSE Group


, that any effort to acquire LSE will need the Nasdaq's cooperation.

The Nasdaq aborted its own hostile takeover of the LSE earlier this year and has been steadily building what it calls a strategic position in the weeks since.

"We are pleased to have increased our strategic stake in LSE through this significant purchase, which takes us through the important threshold of 20%," said Nasdaq CEO Bob Greifeld. "We look forward to working constructively with LSE as its largest shareholder."

The company bought the shares for 1,248 pence per share, 2.5% more than it paid in its last round of purchases, which totaled 10 million shares. The price is a 31% premium to the 950 pence per share price the Nasdaq offered for the entire LSE in March.

The Nasdaq announced the new shares in two separate press releases Wednesday morning. One covered 10.3 million shares, a second 3.5 million shares.

Although the Nasdaq did not say who it purchased the shares from, a number of large LSE shareholders have recently come forward as sellers of their LSE shares, including

Goldman Sachs

(GS) - Get Report


The LSE said it received a letter from Goldman Sachs on Monday noting that the New York-based investment bank "no longer has a disclosable interest in shares" of the LSE. Under U.K. Companies Act rules, a company is required to disclose a stake in a firm if it owns more than 3% of its shares.

Goldman sold out of some, or all, of its stake as of May 4, according to the notification.

According to a



Morgan Stanley

(MS) - Get Report

also sold out of a stake in the LSE. The bank sold 1 millions shares for 1,230 pence apiece, according to the report.

Some large mutual funds are also sizing up their risk and opportunity as the Nasdaq continues to build its stake in the LSE. French fund management firm AXA Capital Management disclosed a 10.6% stake in the Nasdaq on Wednesday. AXA is the second largest shareholder of Nasdaq behind the asset management firm Wellington Management.

Meanwhile, more information came to light on who sold the Nasdaq its last block of shares -- the one it reported a week ago. Late Tuesday, the Nasdaq disclosed that Nightingale Acquisition Ltd., the holding it company formed to acquire LSE shares, purchased 9.8 million shares from Wellington for 1,218 pence per share. That purchase brought the Nasdaq's stake in the LSE up to 18.7%.

Given that Wellington is the largest shareholder of the Nasdaq -- it owns about 12.2%of the shares in the company -- Wellington might have been more anxious to sell its stake as its exposure to the LSE increased through its ownership of the Nasdaq.

Last week, market sources close to the company told

that the Nasdaq would be comfortable holding its stake around 25%. Doing so gives the company participation in the LSE earnings and leaves it in a position to build on the stake in the future, particularly if the shares lose their takeover premium and fall back to earth.

Under London Takeover Panel rules, the Nasdaq must announce a formal offer to the market if it wants to raise its stake in the LSE above 30%.

Financing a full LSE purchase remains a question, however, given the Nasdaq's current capital structure. The company received a $1.92 billion credit facility from

Bank of America

(BAC) - Get Report

to purchase its initial 15% stake in the LSE, then paid off part of that after completing an equity offering. It did not disclose how it financed the current stake.

The market could react badly to news of more borrowing, especially given the lofty prices the LSE has reached. In the longer term, instead of drawing on debt, the company may consider tapping private equity capital, similar to when it acquired Instinet with Silver Lake and Hellman & Friedman.