JUST when you thought the LSE stakes could not get higher, Nasdaq has raised the stock exchange takeover game another notch. Or three.
Nasdaq, the US bourse, said nothing yesterday except that the acquisition of a near-15 per cent stake in the London Stock Exchange was “an important strategic purchase”.
That could mean virtually anything. It could mean that Nasdaq has a strategy based on a desire to make a profitable investment. Nasdaq may have concluded that LSE will be bought at a big price by someone or other — maybe the New York Stock Exchange, maybe Euronext — and there is a turn to be made from taking a slice.
It is more likely that Nasdaq views the purchase as “strategic” because it thinks it will be able to block an LSE-NYSE merger. Lysense (it is an anagram) would be a huge beast and could consign Nasdaq to an also-ran among world bourses for ever and a day.
Nasdaq’s strategic logic, therefore, could be defensive. It is most likely, however, that Nasdaq is on the offensive. It is probable that it sees the acquisition as strategic because it provides an excellent platform from which it can bid for the LSE. Of itself, possession of a 15 per cent shareholding vests strength into Nasdaq’s position. But it also removes a potential blockage. Threadneedle, the previous owner of the stake, could have supported NYSE or Euronext. Or it could have decided to back a plan by Clara Furse and Chris Gibson-Smith, respectively the chief executive and chairman of the LSE, to remain independent.
If one assumes that the move is offensive, the next question to ask is why Nasdaq has changed its tune. It was only two weeks ago that the firm withdrew an indicative offer of 950p a share. How come it has staged such a reversal, so soon? The withdrawal of March 30 was expensive — or at least potentially expensive — in two key ways. It was expensive because under Takeover Code rules it means Nasdaq was unable to lodge another bid for the LSE for at least six months — unless a rival bidder came on the scene or LSE agreed to a deal, or one of a small handful of other improbable scenarios came to pass. Withdrawal was also costly because if Nasdaq does now launch an attack, the starting point must now be £11.75 a share. It was most doubtful that, in the current febrile atmosphere, 950p per share would have been enough to prise the LSE away from its current shareholders and its supremely confident management team. But 950p was a credible starting point. Now Nasdaq must start bidding at a price nearly 25 per cent higher.
So why did it change its tune? Nasdaq may be indulging in some grade A dithering. It may have misread the seriousness of others’ bid intentions. It may be acting injudiciously. It may, though, have realised that it could not afford to be patient. Recent talk about Euronext interest may have galvanised Nasdaq into action. Speculation that the Tokyo Stock Exchange could get involved in the consolidation of world bourses might have put the wind up Nasdaq. A LSE-NYSE link would be frightening enough: a LSE-NYSE-TSE amalgam would leave Nasdaq looking like the smallest of small fry.
One other thought on Nasdaq’s “strategic” comment. M&A historians relate that aggressive acquirers refer to “strategic” benefits only when all financial logic has been thrown out of the window.
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Accounting for change
REGULATORS were stupid and complacent when they allowed Price Waterhouse and Coopers & Lybrand to merge, cutting six global accountancy firms to five. Even then, it was said that four would be too few. Then Enron triggered the collapse of Andersen and a titanic battle with the US tax authorities hung over KPMG.
Something had to be done, so the DTI, via the Financial Reporting Council, commissioned consultants to write a report. The result is long on thorough analysis but short on anything the world and its talking parrot did not know already. But the report deserves to be debated keenly, not shelved.
When 99 of the UK’s top 100 companies employ one of four audit firms and financial deals often require four firms free from conflict of interest, competition is weak and distorted. The UK Government is in no position to restructure global firms even if it had a rush of dirigiste blood and tried to. Even clenched-teeth French attempts to challenge Anglo-Saxon supremacy have failed.
Yet sensible actions can be taken. Whitehall and its agencies could, as a policy measure, positively discriminate in their own contracts in favour of accountancy firms in the second tier. The FRC should publish the reports of its own Audit Inspection Unit; this could dispel the irrational prejudice among boards and City investors that smaller firms are not so good. Big companies that operate overwhelmingly in the UK do not need global audit firms and should be urged to try an alternative.
If second-tier firms can be helped, the Big Four problem might fade away.
Top Marks
A YEAR ago, Marks & Spencer could do nothing right in the eyes of City analysts. Now it can do no wrong. The feelgood factor is rampant. The difference is strong sales in the final quarter of 2005-06 compared with weak sales in 2004-05.
M&S fell from its pinnacle because it was late realising that it had to use cheap foreign suppliers to remain competitive. It was also late realising that fashions were changing faster and that to remain attractive it had find ways to keep up.
Under the impressively professional management of Stuart Rose, the chief executive, M&S is again innovating in food and is clawing back its position in clothing. It will become increasing difficult to maintain the momentum, hence Mr Rose is still doing all he can to play down expectations. But while M&S’s markets are changed, there is emerging evidence that M&S has finally changed with the times.
Channel vision
ITV shareholders, who are inclined to be disgruntled, might well have given a much warmer welcome to Greg Dyke’s contorted scheme to gain management control of the free-to-air broadcaster if they had known that the TV advertising market was so weak that even the World Cup could scarcely lift it. Perhaps the would-be partial bidders had their ears closer to the ground. This would explain their unwillingness to bid high. They might also have realised that ITV is in no state to support a highly leveraged financial structure.
