It's time executives at the Nasdaq Stock Market ( NDAQ) and London Stock Exchange ( LSE.L) grow up. Nasdaq's nearly yearlong campaign to acquire the London exchange has deteriorated into a cross-Atlantic food fight, with each side firing off angry missives. The managements of both exchanges have turned to childish banter as the deadline fast approaches for London shareholders to accept Nasdaq's $5.3 billion hostile bid. Throughout the escalating war of words, Nasdaq has refused to budge from its 1,243-pence-per-share bid, a figure London officials repeatedly have said is too low to consider. Perhaps the defining event of this increasingly bizarre corporate takeover came on Tuesday when Chris Gibson-Smith, the chairman of the London bourse, told Nasdaq officials to "shut up or put up." Nasdaq has done neither. On Wednesday, Nasdaq CEO Robert Greifeld told Reuters he sees little chance of the exchanges "getting together between now and Saturday." That's a reference to the deadline for London shareholders to accept the Nasdaq bid under British takeover law. The long and acrimonious battle is quite a contrast to the orderly manner in which the New York Stock Exchange ( NYX) has pursued its friendly $14 billion merger with Paris-based Euronext, one of Europe's largest derivatives and stock exchanges. Even if Nasdaq can persuade enough London shareholders to accept the bid, its management has tarnished itself in the process.
In theory, it never should have gotten to this. Nasdaq, which already owns around 30% of the LSE's shares, needs just a bare majority of London stockholders to approve the bid, which it calls a "full and fair price." But Nasdaq is having a hard time closing the deal, largely because it has been resistant to raise its bid -- even by just a few pence. The London exchange has been consistently saying that Nasdaq's bid is "wholly inadequate." And apparently LSE shareholders agree. Fewer than 1% of LSE shares have been tendered to Nasdaq so far as of Jan. 11. Shares of the LSE, which have traded as much as 8% above the Nasdaq's proposed bid, closed Wednesday at 1,309 pence per share. That represents a 5% premium to the Nasdaq's so-called final offer. London shareholders have been reluctant to give up their shares in anticipation of a better price for the LSE -- whether that comes from the New York-based exchange or from another bidder. Yet it seems clear that many London shareholders would accept the Nasdaq's bid if the exchange is willing to sweeten the pot just a little. Given that the Nasdaq already plans to finance the bulk of the transaction with borrowed money, it's hard to figure out the logic of quarreling over a few extra dollars, or pounds. The way the Nasdaq is behaving, its almost as if the exchange's executives would like to see the deal fail.
Of course, no one from Nasdaq will comment on its negotiating stance. Maybe they're simply confident of getting enough LSE shareholders to vote for the deal. But James Angel, an associate professor of finance at Georgetown University, sees another possibility. He says that if the deal gets rejected, Nasdaq can walk away, and there's a good chance the LSE share price will collapse. If no other suitor steps up to the plate, Angel says, Nasdaq "may be able to pick it up at a cheaper price." Indeed, many continue to say the Nasdaq holds all the cards in this contest, because it can always sell off some of its big block of LSE shares if the deal collapses. The selloff could crush the LSE's stock. Of course, any rapid decline in the value of the LSE would hurt the Nasdaq, which spent a little under $2 billion acquiring its 30% stake over the past 10 months. And another suitor could emerge and leave the Nasdaq out in the cold. It's a risky and hardball negotiating tactic. But that's what you get when you engage in a hostile takeover.