NEW YORK (Reuters) - The agreement between Nasdaq Stock Market (NDAQ.O) and Borse Dubai to buy stakes in one another to create a group of exchanges linking the United States, Europe, the Middle East and Asia may be a sign of things to come in cross-border dealmaking.
Such alliances could become a way for corporations to get around some political sensitivities about outright takeovers of key national assets, one expert said.
In one stroke, Nasdaq’s complex deal allows it to gain a key ally in one of the wealthiest areas of the Gulf, get control of Nordic markets operator OMX AB OMX.ST, and unload its stake in London Stock Exchange Plc (LSE.L).
“This kind of exchange in the sense of swapping stakes, this reciprocal cross holding, is possibly a substitute for a straight merger because there would be political difficulties in a straight merger,” said international securities expert John Coffee, a Columbia University Law School Professor.
“By finding a deep-pocketed, oil-rich ally, it becomes more possible for Nasdaq to pursue ambitions on a global stage,” said Coffee.
Nasdaq Chief Executive Bob Greifeld said he does not anticipate regulatory hurdles to the deal because Borse Dubai’s voting rights in Nasdaq will be “severely restricted” at 5 percent.
Nonetheless, U.S. politicians immediately expressed concern about the deal. President George W. Bush said the proposed Nasdaq deal would be examined under a newly-strengthened law that reviews foreign investments in U.S. companies.
The law came about after criticism last year when U.S. officials approved the acquisition of some key U.S. port operations by state-owned Dubai Ports World.
Some lawmakers, however, said Dubai’s acquisition of a 20 percent stake in Nasdaq did not prompt any national security concerns.
“It doesn’t raise alarm bells,” House Speaker Nancy Pelosi, a Democrat, told reporters. “This is a marketplace issue.”
Whether it is alliances or outright mergers, foreign partners seem certain to play a huge role in the development of U.S. organizations.
Foreign companies have announced about $267 billion worth of U.S. acquisitions so far in 2007, up from $166 billion at the same stage of 2006, according to research firm Dealogic.
Buyers from north Asia and southeast Asia have announced $16 billion of U.S. acquisitions so far this year, up from only $2 billion for the whole of 2006, Dealogic said.
“Bringing in foreign partners is going to be important for opening up avenues,” said Duke University Law School professor James Cox.
“We’re increasingly going to find that these petrol dollars will migrate not to treasuries but to capital assets in the United States ... and investments in money managers like Carlyle.”
Washington, D.C.-based Carlyle Group CYL.UL, one of the world’s largest private equity firms, said on Thursday it is selling a 7.5 percent stake to an investment unit of the Abu Dhabi government for $1.35 billion, valuing the private equity firm at $20 billion.
“I think we are going to see more alliances (in exchanges),” added Coffee of Columbia University.
“I think the New York Stock Exchange will look at this and start thinking ‘if we don’t acquire companies, if we don’t get a stronger position in companies that we now have a loose diplomatic alliance with, we might be overtaken by Nasdaq’,” Coffee said.