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Borse Dubai and Nasdaq - European Exchanges Trade Off

Borse Dubai and the Nasdaq Stock Market on Thursday announced an agreement that will allow Nasdaq to secure the pan-Nordic stock-exchange operator OMX in return for giving up most of its stake in the London Stock Exchange as well as a fifth of itself.

The plan would put an end to months of fighting between Dubai and the Nasdaq over the fate of the OMX -- and would give Middle East ownership to one of America's two main stock exchanges for the first time. But a rival Qatar fund stepped in on Thursday and threatened to derail the whole pact.

The deal calls for Dubai to buy a nearly 20% stake in the Nasdaq Stock Market NDAQ at an implied price of $41.04 a share, or a 14% premium to Wednesday's close. Dubai will get only 5% voting rights, however, with the rest held by an independent trustee.

Dubai also will purchase 28% of the London Stock Exchange at a price of 14.14 pounds a share from the Nasdaq, which will retain a 3.5% stake it secured in an unsuccessful takeover attempt.

Dubai then will transfer all the shares it acquires in the OMX with its 230 Swedish-kronor-a-share bid to the Nasdaq.

Nasdaq also will take a "strategic shareholding" in DIFX, Borse Dubai's market, which will take on the Nasdaq name. The companies didn't say what investment the Nasdaq will make in the DIFX.

Bob Greifeld, Nasdaq's president and chief executive, said on a conference call that the deal will allow it to share technology with the OMX and bring further liquidity into the Swedish and Nordic stock markets.

"We want to take advantage of opportunities in the post-MiFID world," he added, a reference to a piece of European legislation that will force best-execution practices on brokers, which many expect will increase competition for European stock trading.

OMX shares initially traded sharply lower on the news, as the Dubai-Nasdaq fight came to an end.

But the shares rebounded, rising 2.3% at 246 kronor after the Qatar Investment Authority said it was "evaluating" the situation and told shareholders of the Stockholm, Copenhagen and Helsinki exchange not to take action.

The Qatar announcement came as executives from Nasdaq and Dubai were on a conference call -- eliciting a "no comment" from Greifeld.

Dubai gets Nasdaq boost ... and LSE investment

Essa Kazim, Borse Dubai's chairman, said the deal will help it develop a "world-class" Dubai market, noting $2.3 trillion in excess liquidity in the region that he said needed to be put to work.

"The growth potential is huge," Kazim added, saying that the region may emerge as the world's fifth-largest economic bloc. "You are all aware of oil prices at very high levels."

Nasdaq's Greifeld agreed. "Nasdaq combined with the DIFX will bring additional liquidity and help the economic lives of many," he said.

As for the LSE, the Dubai executives called it a "purely financial investment." There have been no talks between LSE CEO Clara Furse and Borse Dubai.

LSE shares rallied 9.7% to 16.01 pounds a share as investors speculated the U.K. exchange could once again be in play.

"The market certainly thinks so," said Michael Long, an analyst at Keefe Bruyette & Woods. "Dubai has already denied it, so a further denial won't make any difference."

He doesn't expect Dubai to launch a bid for the LSE anytime soon as it will have to concentrate on pushing through the OMX-Nasdaq deal.

But Long added he wouldn't expect the exchange to "sit on its hands" should Qatar -- which previously had been considered a front-runner to buy the LSE stake that Nasdaq put for sale -- mount a bid.

Needs U.S. stamp of approval

In addition to OMX shareholder approval, the exchanges will seek clearance from the U.S. government for the deal.

Nasdaq's two largest shareholders already have approved the deal, Greifeld said.

Nasdaq plans to rename itself Nasdaq OMX Group, with four OMX directors and two Dubai directors sitting on what would be a 16-member board. Stockholm will be the center of the European market activities.

J.P. Morgan, SEB Enskilda and UBS advised Nasdaq, and HSBC and ABG Sundal Collier advised Borse Dubai.



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