NEW YORK/DUBAI (Reuters) - Nasdaq and Borse Dubai agreed to buy stakes in one another in a deal to create a group of exchanges with unprecedented reach, linking the United States, Europe, the Middle East and Asia.
Consolidation among exchanges has so far been mostly in U.S. and European markets, as competition heats up and new technologies allow exchanges to offer trading across borders in a number of sophisticated financial products.
While gaining a key ally in one of the wealthiest areas of the Gulf region, Nasdaq in a single stroke achieved its prized goal of controlling Nordic markets operator OMX AB and unloaded its London Stock Exchange Plc stake, a leftover from two previous failed bids to expand abroad.
“The race to develop the global exchange is certainly apparent,” said Larry Tabb, a consultant with financial research firm Tabb Group. “The acquisition of OMX enables Nasdaq to move into less competitive and more lucrative markets.”
The deal unveiled on Thursday also brings the Middle East into play. Borse Dubai’s actions brought a swift response from regional financial rival Qatar.
Qatar said it had bought a 20 percent stake in the LSE through the Qatar Investment Authority (QIA) and urged OMX shareholders to take no action on the Dubai/Nasdaq offer. The QIA also said it bought 9.98 percent of OMX.
Separately, private equity firm Carlyle Group said on Thursday it was selling a 7.5 percent stake in itself to an Abu Dhabi investment arm for $1.35 billion.
Borse Dubai, a holding company formed last month to promote investment in two Dubai exchanges, has now ended its takeover tussle with Nasdaq over OMX. Instead, it will buy 20 percent of Nasdaq itself, making it the single-largest shareholder.
U.S. politicians immediately expressed concern about the deal, which for some recalled last year’s controversy over Dubai Ports World’s plan to acquire six major U.S. ports.
U.S. Sen. Christopher Dodd, who heads the Senate Banking Committee, said the deal requires a “careful review” to ensure there are no national security implications.
Nasdaq Chief Executive Bob Greifeld told analysts on a conference call that he does not anticipate regulatory hurdles to the deal because Borse Dubai’s voting rights in Nasdaq will be “severely restricted” at 5 percent.
“It is up to us to prove (to regulators) how good this deal is for New York and the U.S.,” he said.
Greifeld, however, had support from New York Mayor Michael Bloomberg, who said the deal gave the city a leg-up on European competitors.
Although the deal must undergo the appropriate scrutiny, “I hope that that discussion does not devolve in the kinds of demagogic attacks that could cost Americans jobs and threaten New York’s place as the financial capital of the world,” he said in a statement.
In a further dimension of the deal, Nasdaq will hold 33 percent of the Dubai International Financial Exchange (DIFX), one of Borse Dubai’s two exchanges. Borse Dubai will use the name Nasdaq-DIFX in the Middle East, North Africa and South Asia. The pair agreed to a separate joint venture in China.
“This (Dubai) transaction ... represents a strengthening of our U.S. market presence, a strengthening of OMX’s European market presence, and certainly an opportunity to do things in the emerging markets that have never been done before,” Greifeld told reporters.
Nasdaq shares rose 1.4 percent to close at $36.51 after soaring 8 percent in the morning. LSE shares rose 16 percent to close at 16.87 pounds and OMX leapt 7.7 percent to 259 crowns.
Sources familiar with the matter said Citigroup, which made block trades totaling 12.8 percent of OMX shares, was buying OMX shares in the open market on behalf of the QIA.
The QIA, which did not disclose the source of its 20 percent LSE stake, said it would not make a full takeover offer, “but reserves its position in the event that a third party announces a firm intention to make an offer.”
The LSE said it welcomed the QIA as a long-term investor. Given the development of Doha as a financial center, the shareholding presented significant opportunities, it said.
Borse Dubai Chairman Essa Kazim also said its LSE purchase was a long-term investment.
With oil and gas prices staying strong, Qatar and Dubai have been prominent global investors. Dubai has spent more than $15 billion in less than three years on foreign acquisitions, including $6.8 billion for British ports operator P&O.
Meanwhile, the Qatari-backed Delta Two investment fund is seeking to buy UK supermarket chain J. Sainsbury Plc.
Unlike Qatar, Dubai is not a major oil producer, but has benefited from a quadrupling of oil prices since the start of 2002, attracting investment from its neighbors in its property and tourism industries and fueling the ambitious economic expansion plans of its ruler, Mohammed bin Rashid al-Maktoum.
Additional reporting by Sven Nordenstam in Stockholm, Christian Plumb in New York and reporters in Stockholm, Dubai, London