In the Market


Economic News

22 Jul 2010
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The Qatar Investment Agency (QIA) has emerged as the clear front-runner to grab a major stake in the London Stock Exchange (LSE). It ended weeks of speculation on September 13 when it formally announced a bid for the 31% stake in the market held by the US exchange operator Nasdaq.

Media reports four days later said QIA was close to clinching the deal, believed to worth around $1.73bn, with the LSE's CEO Clara Furse said to be in favour of the sale. If successful, the investment fund will become the largest single shareholder in the LSE.

Nasdaq, which has been put up for sale after the American firm failed in two attempts earlier this year to gain a controlling interest the LSE, is looking for a quick closure on the deal as it wants the cash to improve its own bid for OMX, the Nordic stock exchange operator. The US company had made the early running in the bidding for OMX, only to run head on into a rival bid from Borse Dubai, the firm that operates the emirate's two exchanges.

QIA became the front-runner in the race to grab Nasdaq's shares in the LSE mainly on the strength of other potential bidders either dropping out or not even entering the final bidding process.

According to reports in the British media on September 13, Singapore state investor Temasek Holdings withdrew from the contest. However, on September 17, Temasek issued a statement saying it had not made an offer for Nasdaq's holdings in the LSE nor had it even considered doing so.

On September 12, an Italian consortium, which had recently been linked in the media with QIA in a joint bid, and Germany's Deutsche Boerse, which said it was not interested in taking up Nasdaq's shares in the LSE, both became non-contenders.

The Italian bid did not meet with any favour from the LSE, with operators of the exchange pointing out that such a buyout would constitute a hostile move, as Italian investors already hold 29% of shares in the company that controls the LSE and the Borsa Italiana, which merged earlier this year.

The Italian proposal involved the investment fund Clessidra and the foundations MPS, Cariplo and CRT taking up some 10% of Nasdaq's stake, with the remainder going to QIA. Only days before, QIA had been first linked with the Italian consortium, with an Italian newspaper reporting on September 9 that a joint bid was being discussed.

However, with the Italians out of the picture, and other potential bidders having ruled themselves as non-starters, the field was left open for QIA to make an offer for the full stake being put up for sale.

The bid for the LSE is not Qatar's only recent foray into the English economy, with the Qatari investment body Delta Fund, which is backed by the QIA, already deeply involved in efforts to buy another British icon, the supermarket chain Sainsbury's, having put in a revised offer of $21.7bn to increase its holding in the company from the present 25% to gaining total ownership of the firm.

QIA may be looking at grabbing a slice of the LSE to make up for its failure to gain control of Thames Water Utilities, the UK's largest water service company, being beaten out in a bidding war by a consortium led by Australia's Macquarie Bank last October.

Full details of QIA have not been made public but a report released in August by the Washington-based Peterson Institute for International Economics suggested it had assets of around $50bn, with a diverse portfolio stretching around the globe. Its holdings include a stake in the European Aeronautic Defence and Space Co, acquired in July, and $205m worth of shares in the Industrial and Commercial Bank of China, bought last year.

On September 4, Kenneth Shen, QIA's head of strategic and private equity, said the investor was looking to build on its holdings in Asia, "though not necessarily at the expense of Europe or the US". Any bid for the LSE would only serve to confirm the authority's interest in acquiring interests in Europe.

If it gains a 31% stake in the LSE, the authority will not only have built on its already extensive portfolio but also strengthened Qatar in its tussle with Dubai and Bahrain to be the pre-eminent financial hub in the Middle East.

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