Bid To Take Over London Stock Exchange Is The Latest In The Evolution Of Stock Markets
November 8, 2000
University Park, Pa. --A hostile bid valued at as much as $1.45 billion by a Swedish trading technology group OM Gruppen AB, which runs the Stockholm Exchange, to take over the London Stock Exchange is expected to fail this week.

"Although the London Stock Exchange (LSE) rejected the bid as inadequate, there is some sentiment among LSE shareholders that the London Stock Exchange needs a partner going forward and that OM Group should be considered. OM's views on technology and management requirements, however, do not mesh well with existing LSE structure, regardless of their merits," says Ian Domowitz, professor of finance at Penn State's Smeal College of Business Administration and immediate past-chair of Nasdaqís Economic Advisory Board. 

Nasdaq also is rumored to be interested in acquiring the London Stock Exchange.

"The global strategy has been to introduce partnering arrangements. The London Stock Exchange presents one such opportunity. A Nasdaq-LSE deal along some dimension could result, given proper planning and management, in the ability of LSE shareholders--which might under such an agreement include US firms--to access both European and American stocks more cheaply," says Domowitz.

Domowitz's areas of expertise include finance, econometrics, statistics, and industrial organization, including work on the organization and regulation of electronic trading market structures. He is a consultant to various government and international organizations, including the Federal Reserve System, the Commodity Futures Trading Commission, the International Monetary Fund, and the World Bank, as well as to various securities exchanges. He serves on the Scientific Advisory Board of ITG, Inc. He is also a former member of the NASD's Bond Market Transparency Committee.

"I doubt highly that Nasdaq will make an outright acquisition bid, regardless. The sentiment within the LSE and its community has clearly been expressed as independence, at least in some form," says Domowitz.

There are major problems with a Nasdaq--or even a New York Stock Exchange--deal with the LSE, explains Domowitz. "Some of the problems are regulatory. The U.S. Securities Exchange Commission, for example, must rule on how and when U.S. investors going through a joint entity might directly access European shares."

Other hurdles to such a deal have to do with the U.S. entities' structure. These include rather uncertain governance, different market microstructures, technology platform problems, and valuation issues, which must arise in any potential deal.

And, Domowitz notes, Nasdaq has other options: the OM Group, Euronext (Paris, Brussels, Amsterdam), and the Deutsche Bourse.

**SI**

Editors: Domowitz is at 814-863-5620 (office) or Please contact Steve Infanti of the Smeal College External Relations Office at 814-863-3798 or if you need any assistance.