Bob Greifeld may have abandoned his pursuit of the London Stock Exchange, but his recent whirl of deal making shows that his global ambitions are as grand as ever.
On September 20 the hard-charging Nasdaq Stock Market CEO finally secured his European beachhead after a wracking 18-month quest. Greifeld, 50, struck a clever, convoluted deal with Middle Eastern exchange operator Borse Dubai. The transaction will result in Nasdaq’s owning Nordic exchange group OMX and selling most of its 31 percent stake in the LSE to Borse Dubai, which will in turn acquire 20 percent of Nasdaq. Then the partners plan to launch joint ventures in the Middle East and China.
“We will be dominant in the Nordic region, but we’re going to use that platform to expand our entire European effort,” Greifeld tells Institutional Investor. “Then we’ll have the leading offering in the developing markets.”
An avid marathoner, Greifeld didn’t let up after negotiating that difficult transaction. Less than two weeks later, he followed up with a $61 million agreement to take over the Boston Stock Exchange. And on November 7, he cemented a $652 million acquisition of the Philadelphia Stock Exchange.
The OMX deal has rightly garnered most of the headlines. For Nasdaq, the transaction turned a rival bidder for OMX into an ally and trumped yet another suitor, the Qatar Investment Authority, while freeing Nasdaq of the LSE stake it had accumulated as part of its hostile bid for that exchange. That investment had tied up precious capital without yielding strategic benefits. Now Borse Dubai will go ahead with its $4.9 billion bid to acquire OMX, a deal that in August topped an existing offer from Nasdaq, then hand the company over to Greifeld. In return it gets $1.9 billion in cash and 20 percent of Nasdaq. In a separate transaction that has already closed, Borse Dubai paid $1.6 billion to acquire 56 million LSE shares -- a 28 percent stake -- from Nasdaq.
The deal also gives Nasdaq a leg up among global exchanges in emerging markets through its new strategic relationship with Borse Dubai. Nasdaq gains a 33 percent stake in the Dubai International Financial Exchange, one of the two exchanges Borse Dubai operates; it will operate under the name Nasdaq-DIFX in the Middle East and in parts of Africa and Asia. A separate joint venture will focus on Chinese listings and trading.
Notably, Greifeld pulled off the sale of a significant stake in one of the U.S.'s two major stock exchanges to a Dubai-owned company, with nary a whimper from Washington -- no small feat in the wake of the political furor that accompanied state-owned Dubai Ports World’s failed effort early last year to acquire six big U.S. ports. (Dubai will have only 5 percent voting control.) Not bad for a man whose often blunt, take-no-prisoners approach to business negotiations is thought to have hurt him in his now-aborted bid to acquire the LSE.
The least-noticed aspects of Greifeld’s deal making may be the most significant in the long run. Owning OMX will give Greifeld a European exchange with which to vie against the LSE, NYSE Euronext and Deutsche Börse for trading volume as new regulations -- collectively known as the Markets in Financial Instruments Directive -- take effect throughout Europe this month, encouraging greater competition. But OMX’s hidden gem is its vast business that provides technology for more than 100 exchanges around the globe. This gives Nasdaq a fifth revenue stream to complement its trade execution, market data, listings and financial products businesses. More important, it provides a treasure trove of relationships that Nasdaq can exploit when seeking alliances and further acquisitions.
“The technology business is interesting and exciting by itself, but it also brings particular appeal in becoming part of the global fabric of exchanges as we go through this period of consolidation,” Greifeld says. Specifically, he sees OMX’s technology relationships as a way to forge a strategically beneficial middle ground between outright acquisitions and memoranda of understanding between exchanges, which he characterizes as useful for establishing a dialogue but largely ineffective from a business standpoint. “With the OMX technology relationship, we’ll have alliances with exchanges that actually mean something and where we’re actually doing something together,” he says.
Then there are the two regional exchange acquisitions. Buying the Philadelphia market immediately makes Nasdaq the third-biggest U.S. options exchange, vaulting it ahead of archrival NYSE Euronext. The Boston deal, however, appears curious on its face. It has been several decades since the BSE was regarded as a player in U.S. equity trading. Its most promising asset, a minority stake in the Boston Options Exchange, a three-year-old electronic platform that executes about 6 percent of U.S. equity options volume, isn’t part of the sale (the BSE will proceed with the planned sale of its BOX stake to the Montréal Exchange).
But for its $61 million, Nasdaq cheaply acquires two assets from the BSE that make lots of business sense in the long run. One is a second exchange license, which gives it control of another facility through which traders report completed transactions to the market. The acquisition of this second “tape” provides redundancy for Nasdaq’s U.S. trading business. That’s vitally important for segments of the trading community that value high speed and can’t tolerate interruptions in trading caused by occasional systems outages. An increasingly nettlesome rival, two-year-old BATS Trading, which now handles some 10 percent of Nasdaq-listed volume, is in the process of lining up a second trade reporting facility for its customers. The BSE deal lets Nasdaq keep pace.
More important is the BSE’s clearing license, one of just three in the U.S. Another one is owned by the Depository Trust & Clearing Corp., an industry utility that settles most U.S. stock trades. The third belongs to Nasdaq’s latest target, the Philadelphia exchange. Acquiring these licenses could position Nasdaq as a competitor to DTCC in the lucrative clearing business, just as various alternative trading systems have broken up the duopoly Nasdaq and the NYSE once enjoyed in executing trades on the front end.
To be sure, some observers believe that Greifeld’s ultimate target remains the LSE. The Dubai deal, these people speculate, could be a way of chipping away at LSE’s business under MiFID, in the hopes of making another run. After all, Borse Dubai’s 28 percent in the LSE gives it a more than ample base from which it and Nasdaq might one day mount a successful bid. At the very least, it might stop a rival like NYSE Euronext from invading London. Greifeld discounts this theory.
“That doesn’t play into our thinking,” he says. “We’re focused on gaining share of trading across Europe, and that focus will be independent of the London Stock Exchange.”
