Nasdaq down after London tells shareholders to reject hostile offer

SHARES of the Nasdaq Stock Market plunged to their lowest levels in over a month after the London Stock Exchange LSE.L urged shareholders to reject a £2.7 billion (€4.02bn) hostile bid from the largest US electronic stock market.

The London exchange, which issued a bullish profit forecast and pledged a dividend hike yesterday, said Nasdaq’s second offer this year substantially undervalued it in relation to its peers, adding that its stellar growth would continue to be boosted by a rise in electronic trading and a slew of companies — many foreign — listing on its markets.

Nasdaq shares were down $1.49, or 4.1%, at $34.50 in morning trading.

“This drop is absolutely in reaction to LSE’s rejection,” Piper Jaffray analyst Joshua Elving said. “I’m a little surprised Nasdaq is down this much, but there is a lot of fast money in exchanges”.

With the New York Stock Exchange receiving merger approval from Paris-based Euronext shareholders earlier, investors might be viewing Nasdaq’s apparent inability to negotiate with the London exchange as a concern, he added.

The LSE said its strong performance justified its rejection of the 1,243 pence-a-share offer from Nasdaq, which already owns 28.75% of the London exchange.

“For the second time this year Nasdaq is offering a wholly inadequate price for the company and shareholders should reject the offer”, Chris Gibson-Smith, the LSE’s chairman, said in the exchange’s initial bid defence document. Nasdaq said nothing the LSE said changed its view on value.

“LSE’s current share price is not supported by the company’s standalone prospects and is only sustainable because of Nasdaq’s final cash offers,” Nasdaq president and chief executive Robert Greifeld said in a statement.

The world’s stockmarkets are under pressure from customers who want lower fees and broader offerings.

The LSE said its adjusted basic earnings per share (EPS) for the three months to December 31 would be no less than 14.5 pence, an increase of at least 48% on the same period last year. This would take EPS for the first nine months of its fiscal year to at least 38.6 pence, up 51%, and EPS for the 2006 calendar year to at least 50.4 pence, or up 58%.

“It looks quite a bit ahead of my forecast,” said Bridgewell Securities analyst Katrina Preston, who said the 50.4 pence figure compared with her calendar 2006 forecast of 46 pence.