According to Bloomberg, the Nasdaq Stock Exchange (NASDAQ: NDAQ) is considering selling its 31% stake of the London Stock Exchange, effectively giving up on trying to acquire the company. This money would be used to sweeten the company's bid for Sweden's OMX and help Nasdaq's financial condition.
What kind of money will the Nasdaq be able to receive for the LSE? Recently, the LSE's market value on the London Stock Exchange was $5.2 billion. Assuming Nasdaq sells its 31% block for a 20% discount, the Nasdaq would stand to get nearly $1.3 billion for the stake. Unfortunately, Nasdaq paid $1.33 billion for this stake originally so, unless the Nasdaq can receive the full value of its stake (which is unlikely), it stands to lose money on the deal. According to the company, this sale should produce about 35 cents in EPS next year.
Nasdaq would use this money to buy back stock, retire debt, and increase its offer for the OMX. According to the Bloomberg article, about $1 billion of the proceeds will be used to improve the financial condition of the company (via share buybacks and retiring debt) -- a move that should improve EPS on two fronts.
The company's current bid for the OMX was recently outdone by the owner of two of Dubai's stock exchanges. In order to become the top bidder again, Nasdaq needs to increase its bid by about $355 million.
This is a very interesting strategic move for the company. With the LSE rejecting the Nasdaq's attempts to take over the company, Nasdaq's 31% stake in the company now seems rather purposeless. Nasdaq's intentions for this capital also make sense. Buying back stock and retiring debt would appease Wall Street because these tend to be very productive means for increasing EPS. Increasing the bid for the OMX helps the company immensely because it considers the OMX a very important target.
Investors seemed to be pleased by this news as the stock rose about 6% at the open, but the stock has been fading through the morning and now is just up 2.3%. Nasdaq is among the cheapest names in the exchange space (on a P/E basis) -- a space loved by growth expert Louis Navellier.
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