Confused by the Borse Dubai, Nasdaq and OMX merger saga? Financial Review leads you through the story as it unfolded, and what it means for Dubai's plans on the world financial stage
The birth of Borse Dubai was bereft of the usual Dubai-style pomp and PR blitz. About six months into its existence, the company is in the thick of a global stock exchange consolidation frenzy that's approximately worth $100 billion.
The modest announcement in early August on the creation of Borse Dubai went almost unnoticed by the international media.
Barely a week later, however, a seemingly low profile press release from the new entity stating its intention to buy a significant stake in OMX AB, the Nordic stock exchanges operator, caught the fancy of the global financial markets and the media.
A few weeks from now, Borse Dubai will officially be a part of Nasdaq OMX group, which has a foothold across the US, the UK, Europe and Asia.
Borse Dubai, the holding company of the Dubai Financial Market and the Dubai International Financial Exchange, almost barged into the global stock exchange consolidation bandwagon as a late entrant through its $4 billion all-cash bid for OMX in mid-September.
The Dubai firm made that move at a time when the US stock exchange Nasdaq had almost finalised a merger deal with OMX management and was awaiting regulatory clearance from Scandinavian regulators to make a public offer to OMX shareholders.
The Dubai bid suddenly changed the equation, and put Nasdaq on a collision course with Borse Dubai. Behind-the-scenes negotiations backed by strong willpower and deep pockets saw the Dubai firm eventually joining hands with their rivals to create a global stock exchange group.
A complex deal thrashed out between Borse Dubai and Nasdaq on September 20 set the course for a series of transactions that averted what could have been one of Europe's messiest takeover battles. In the end game the competitors emerged as partners, taking even the prying media by surprise.
The deal meant that in one stroke Borse Dubai became a major force in the global stock exchange consolidation.
Says Saud Ba'alawy, Vice Chairman of Borse Dubai, "This deal clearly points towards the growing role that Dubai will play in the global marketplace. By entering into this partnership with Nasdaq, we will benefit from its world leading brand, technology and platform."
As part of its deal with Nasdaq, Borse Dubai is set to acquire a 19.9 per cent stake in Nasdaq (capped at five per cent voting rights) in exchange for all the OMX shares to be acquired by Borse Dubai in its offer for OMX.
Nasdaq will become a strategic shareholder and the principal commercial partner of DIFX. As part of the agreements, Borse Dubai acquired 28 per cent of the share capital in the London Stock Exchange (LSE) from Nasdaq.
"Our primary objective is to build a world-class, growth-oriented exchange out of Dubai, and to become the centre for capital markets activities in the emerging markets. By entering into this partnership with Nasdaq, we will benefit from Nasdaq's world leading brand, technology and platform," says Eisa Kazim, chairman of Borse Dubai.
Independent observers say that through its deal with Nasdaq, Borse Dubai achieved much more than it originally planned when it embarked on a bid to gain control of OMX.
"This outcome has been a great achievement for all the players, and gives Borse Dubai much more added benefits than what had been contemplated from the initial offer," says Ziad Makkawi, chief executive and founder of Algebra Capital, based in the Dubai International Financial Exchange (DIFX).
On completion of the deal, Nasdaq and OMX will be known as The Nasdaq OMX Group Inc., and the board of the combined company will comprise 16 members, of which Borse Dubai will be entitled to nominate two directors and OMX four directors.
"This combination provides significant benefits for customers, shareholders and other stakeholders in both companies," says Bob Greifeld, president and chief executive officer of Nasdaq.
Regulatory hurdles
To get where it is today, Borse Dubai had to go through a baptism by fire. In the initial stages of the bidding process, a trial by media even questioned the pedigree of the young Dubai firm to own a European exchange.
Meanwhile, the Swedish Financial Services Authority (FSA) and the Swedish Economic Crimes Bureau examined even the smallest details of the bidding process, especially the options agreements the Dubai firm entered with some of the hedge funds to acquire OMX shares. Borse Dubai came clean on all counts.
"Right from the beginning we made sure that we were always on the right side of the laws and regulations," says a source who was part of the legal team advising Borse Dubai.
Early last month, Borse Dubai obtained clearance from the
Committee on Foreign Investment (CFIUS) in the United States concerning Borse Dubai's investment in Nasdaq.
Although Borse Dubai's deal with Nasdaq was reminiscent of DP World's attempt to acquire the US-based port assets of the UK's Peninsular & Oriental (P&O), which got shelved due to US domestic politics, the Borse Dubai deal did not attract enough public attention to derail it.
After obtaining all the regulatory clearances from the US and Sweden, Borse Dubai made a public offer to OMX shareholders on January 8, which closed on February 5.
Prior to the public offer, Borse Dubai owned close to 50 per cent stake in OMX through its direct acquisition of shares from the market, options agreements with a few hedge funds and sale undertakings from some of the institutional investors.
Following the completion of the deal, Nasdaq will acquire a significant equity stake in Nasdaq, and DIFX will be rebranded.
In association with Nasdaq, DIFX can then be expected to play a key role in the consolidation of stock exchanges across the Middle East and Asia according to Per E Larsson, chief executive of Borse Dubai.
The goal of Borse Dubai, says Larsson, is to offer investors a single platform across which they can trade a wide variety of asset classes.
The partnership with Nasdaq OMX will enable DIFX to access its technology platform, enabling it to integrate many more exchanges in the region. "Technology partnerships create the most value.
"What we will see is consolidation on the equity side, and consolidation on the trading platform and technology side to create multi-market type exchange structures, to support diversification into derivatives, commodities, etc," he says.
Going further, DIFX and DFM will be operationally linked on the new technology platform and the implementation of new OMX technology will create a trading platform on which investors can trade seamlessly.
"Despite being regulated by two authorities, our objective is to integrate the operations of both the exchanges into one platform, on the concept of one exchange and two markets," says Kazim.
While the association with Nasdaq is expected to attract a large number of regional listings to DIFX, Borse Dubai expects to play a key role in the regional integration of markets.
Who's where in the race?
- New York Stock Exchange: Merged with Euronext,
operator of five European markets, including Liffe, the London financial futures market, recently acquired the American Stock Exchange.
- London Stock Exchange: Has had formal offers from Deutsche Borse, Euronext, the Australian bank Macquarie, OMX and Nasdaq. Last year it took over Borsa Italiana. Currently, Borse Dubai and Qatar Investment Authority together hold a 48 per cent stake in LSE.
- Deutsche Borse: Failed to acquire LSE and Euronext. Last year it merged Eurex with the International Securities Exchange. On a combined basis, Eurex and ISE are the market leader in individual equity and equity-index derivatives worldwide.
- Nasdaq: This month completed a deal with Borse Dubai to acquire OMX, the Scandinavian exchanges operator, in exchange for a 19.99 per cent stake. As part of the deal, Borse Dubai acquires a 28 per cent stake in the London Stock Exchange.
Nasdaq is set to acquire a significant stake in DIFX and rebrand it to NasdaqDIFX. Nasdaq recently agreed to buy the Philadelphia Stock Exchange for about $652 million and to pay about $61 million for the Boston Stock Exchange.
