In March 2006, we made an unsolicited bid to purchase LSE for £2.4 billion or £9.50 per share of their stock, a substantial premium over its market price. The offer made great business sense for Nasdaq, but actually taking this step was quite a Rubicon moment for me, personally. After all, it had only been three years since I walked in the door. Given the situation then, it was almost unfathomable that we would so soon be in a position to pursue an acquisition like this. NYSE was a known quantity—it’s down the street, literally. This was another country, another culture, another history.
I traveled to the UK with Nasdaq’s Chairman of the Board, Baldy Baldwin, to meet with his counterpart at LSE, Chris Gibson-Smith. At first, this overture backfired as well. Baldy called Gibson-Smith in the late evening, an apparent faux pas in London’s still more traditional business culture. The 24/7 world had not yet arrived across the pond. The world of international dealmaking is always littered with cultural landmines, and it’s wise to tread carefully at all times.
Eventually, we met with Gibson-Smith and Furse in the LSE offices and presented our offer. Furse’s pained expression made clear that she was against it from the start. Our connection with Gibson-Smith was more cordial, but at the end of the day, he too seemed less than enthusiastic about the deal. The LSE Board immediately rejected it. We thought our bid was generous, but they announced that it “substantially undervalued” the exchange.
My own opinion was that the LSE Board was doing a disservice to shareholders in dismissing our bid out of hand. I understand the reluctance to be bought—I felt the same way about Nasdaq, and I considered it my job to act as entrenched management every day by executing on our business plan and doing our best to succeed and stay independent. But if a serious bid came in, I knew that was the time to start acting as a fiduciary of the shareholders and give it due consideration. As management, you don’t own the company; the shareholders do, and you work for the shareholders. I didn’t feel the folks in London were fulfilling that duty.
So we went directly to the shareholders. After our first offer was rebuffed, we made an uninvited bid, bypassing the Board and management. We were in the middle of an off-site planning session with the Nasdaq executive team in November 2006 when news of our intention was leaked to the press. One minute we were having a relatively uneventful weekend, working on strategy and spending time together socially; the next we were all over the news. The tone of the retreat abruptly changed as we got down to planning next steps with our bankers. On Monday morning, November 20, we initiated what is known in the mergers and acquisitions world as a “dawn raid.” We started buying LSE stock in the open market with Nasdaq cash, and sent them a public letter announcing our intention.
Over the months that followed, we went through a number of phases in our attempted takeover, many of them dictated by the clear and specific rules outlined by the UK Panel on Takeovers and Mergers. We accumulated a large stake in LSE, reaching up to 30 percent of their shares (we needed at least 50 percent to gain a controlling interest). We managed to get a couple of LSE’s largest institutional shareholders to sell us their entire stakes. By this time, we were paying a premium, around £12.50 a share. As often happens when a large potential acquisition in is the air like this, a number of big hedge funds had also taken their own significant stakes in LSE. They had no long-term interest in the company, but they hoped to drive the price up and turn a fast profit.
John Paulson, then a relatively unknown investor who would later become famous for successfully shorting the U.S. housing market, was one of these new shareholders, as was Sam Heyman, another New York hedge fund manager. I was happy to learn I could pursue my ambitions across the pond simply by walking down the street—such is the global nature of finance. I engaged them both in a series of meetings, hoping to purchase their shares, which would have pushed us over 50 percent. (It was somewhat interesting to me that they each had the exact same price. As someone once told me, hedge funds hunt in packs.) Ironically, both hedge fund managers—short-term specialists by nature—tried to convince me to “think of the long term” and not worry about paying a premium for their shares.
The banks supporting our bid assured us that they would lend us the money necessary to meet Paulson and Heyman’s price. Initially, it was intoxicating to think that control of LSE was within our reach. All we had to do was give the go-ahead. It actually surprised me how easy the money was to obtain. It was a period when credit was readily available. (Looking back, that seems a bit ominous.) But the more we considered the possibility, the less appealing it became, until finally we decided the asking price was simply too high. We dropped the bid, right at the one-yard line. We’d set ourselves a maximum price we were willing to pay, and we’d already exceeded it. I knew it was time to let it go. Our balance sheet was already so highly leveraged from the Instinet acquisition that we would have had no cushion. I didn’t want to put too much debt on our books. In hindsight, I’m glad I made that call. This was only a little more than a year before the 2008 financial crisis, and taking on that much debt at the top of that business cycle might have proved disastrous. While I had no special insight into what was to come, I understood that excessive leverage brings real risks, seen and unseen.
It’s Not Personal
It’s never easy to walk away from a deal that you’ve pursued for weeks, months, or even years. In a moment like that, it can be easy to keep reaching for the finish line just because you’ve already come so far. Economists call this the “sunk costs fallacy”—the reasoning that further investment is warranted simply because time and resources have already been invested and cannot be recouped. It’s not logical, but it’s easy to fall for. You think of all the sleepless nights, stress, and time that can’t be reclaimed. Maybe you pay a little more than you planned, give up a few items on your nonnegotiable list, compromise more than you intended. But sometimes that’s not the right choice.
We were in love with the LSE deal, no doubt. It fit our strategic direction; it seemed the best option on the table. But we didn’t have to do it. We weren’t that smitten; we knew we had other strategic options. Indeed, the only acquisition I ever felt we had to do was Instinet. LSE was a choice, not a necessity. And it’s important in moments like that to know the difference.
What also helped me keep a clear head was the knowledge that it wasn’t personal. Sure, I was invested in every deal I pursued, but in the end, it was business. The success or failure of the deal didn’t reflect on me or my leadership capacity. I tried to adopt an attitude that I’d learned from the venture capital world. VCs expect nine out of ten investments to fail, so they learn to take setbacks in stride. By contrast, some of my counterparts in negotiations over the years seemed to treat these deals like life-or-death struggles. An unsolicited offer was a personal affront. A buyout was a sign of personal failure. And a deal initiated but not completed was something to be ashamed of. In high-profile, public acquisitions, the press can fan these flames.
The financial press covered the LSE saga in great detail, especially in London, with some hand-wringing about the “barbarians at the gate” who were seeking to take over critical UK assets. For Nasdaq, it was a setback. But it did have some positive outcomes. It was a real learning experience—I learned a lot about European takeover rules and the culture of business in the region, lessons I would apply effectively in the next acquisition attempt. Second, we would eventually sell our LSE stake for a significant profit—almost $431 million! I joked with my executive team that we were probably the most successful hedge fund in the country in 2007.
Joking aside, I was disappointed not to have a chance to remake LSE in Nasdaq’s image. But there was no time to waste worrying about what might have been. The need to expand globally was still an urgent concern, and our attention quickly shifted to other areas of the map. The sweet spot for our acquisition interest would be an exchange that was aligned with Nasdaq’s strengths, provided robust synergies and savings, expanded our business into adjacent
areas, but was operationally a step behind the technological and business efficiencies we had embraced—in other words, one where we could simultaneously reduce costs and add real value to both businesses. Soon, our attention alighted on a target.
Colder Climates, Warmer Negotiations
I first got to know about OMX, a collection of Nordic exchanges, over a glass of champagne (or three) with its CEO, Magnus Böcker. He had organized a tasting event for potential customers in New York City, and we quickly connected. Never one to do things by halves, Böcker had hired one of the foremost champagne experts in the world to be our guide for the evening. Böcker was a warm, charismatic people person with a magnetic charm. We began what would be a lasting friendship that night, and his company, OMX, caught my attention as well. The more I looked, the more I was intrigued.
Here was a collection of recently demutualized Scandinavian exchanges under one roof, a business that we knew intimately. Here was the dominant global brand in the exchange technology business, which played to our technology strengths. Here was a business that synergistically extended Nasdaq’s product lines, with its derivatives exchanges and clearinghouses. Here was a profitable business, but not so well run that we couldn’t find great efficiencies in a merger. Here was a company with deep connections not only in Europe, but also in exchanges around the world that were OMX technology customers. A Nasdaq-OMX merger began to look like a fantastic opportunity.
From the beginning, the negotiations were friendly and professional, with shareholder value at the top of the agenda—a marked contrast to our previous merger attempts with LSE. We agreed upon a price of $3.7 billion, 19 percent above the stock price at the time we announced the merger. Böcker agreed to come to New York to serve as President of the combined company. All the major stakeholders gave the deal a green light. We also lined up positive endorsements from OMX’s major investors, including the most significant Swedish shareholder, Investor AB, which is the investment arm of the Wallenberg family. At Nasdaq, we were thrilled with the deal. Despite regulatory hurdles in both countries that were still to be overcome, we were confident that it would go through.
There were a number of reasons why it was a win for Nasdaq. In the world of stock exchanges, there was a consolidation occurring—local exchanges were becoming regional, and regional ones were becoming global. OMX, which had recently acquired most of their own regional exchanges—including ones in Finland, Iceland, and Denmark—was a perfect example of that trend. We wanted to be in a position of strength as that process played out.
On the branding side, we wanted to protect our listings business. At that time, there were essentially four stock exchanges that had a robust, global listings business—Nasdaq, NYSE, London Stock Exchange, and the Stock Exchange of Hong Kong. NYSE had just done a deal with the Paris-based Euronext, which had itself been formed out of a series of mergers and acquisitions between exchanges in Paris, Brussels, and Amsterdam. For us, that created a competitive concern. If a global footprint became a significant wish list item for companies looking to IPO, Nasdaq needed to be able to check that box.
Even more critical was preserving our competitive position with our existing premier companies like Microsoft and Google. If our big technology companies began to value having a listings exchange with global connections, we didn’t want to be caught on the back foot. (As it would later turn out, this fear was unfounded. Global reach is still critical, but for the most part, companies list on national exchanges and investors can reach them from all over the globe. There are some minor exceptions, in particular Chinese companies, who often seek North American investment capital, and Israeli companies, who regularly list on American exchanges.)
OMX was also the unquestioned leader in the exchange technology business—selling technology to exchanges around the world. That could allow us to dominate the next wave of technology upgrades as emerging markets around the world developed their own exchanges. This high-margin software and services play had great promise. I was surprised when some of our investors and some employees didn’t understand its potential. “Are you going to sell it off as part of the deal?” they would ask me. Why would I sell a business that was in our strategic sweet spot, had huge growth potential, leveraged our technology, and had fantastic margins?
In our meetings, I was also encouraged by OMX’s culture. At first blush, it was too bureaucratic—lots of committees, extra people, endless analysis, and a consensus-driven decision-making process that could be frustrating and time-consuming. But we found some elements that were scrappier and more entrepreneurial than I had expected. They had started as upstart outsiders before acquiring the various regional exchanges, and still retained some of that energy in their cultural DNA. Throughout the organization, we found pockets of great talent and innovative spirit. Their original founder, Olof Stenhammar, had cut his teeth in American business and imported some of its values when he returned to Scandinavia to start the original OM options exchange. Their entrepreneurial DNA was buried, but the basic blueprint was there.
All in all, the merger was an exciting prospect, a positive move forward for Nasdaq’s global ambitions, and our first significant step to becoming a truly international company. We announced the deal in May 2007 with much celebration on all sides. It was a match made in stock market heaven—or perhaps I should say Valhalla. That is, until we got a call from Dubai, and the whole deal started to fall apart.
Adventures in International Dealmaking
Borse Dubai was a government-controlled exchange operator in the United Arab Emirates. In August 2007, about two months after our initial announcement, they launched their own takeover bid for OMX that valued the company at 14 percent above our offer.
After I got over my initial surprise and irritation, I worked to understand the nature of their interest in OMX. On closer inspection, it was part business, part family rivalry. OMX’s founder, Stenhammar, had two protégés, two sons, so to speak—Magnus Böcker and Per Larsson. Larsson served as CEO for seven years after Stenhammar became Chairman in 1996. He and Böcker were friends and also competitors. Böcker took over Larsson’s position in 2003. Larsson went on to become CEO of a Borse Dubai subsidiary, the very company that was trying to outbid Nasdaq for OMX. We were caught in the crossfire of a global power struggle, but also a local dynastic rivalry.
Beyond the family dynamics, why were they interested in making a bid? What was the business case? How serious were they? Was there a possibility of a three-way deal? As a matter of due diligence, I immediately flew to Stockholm to convince the powers that be of the superior value of a Nasdaq-OMX merger, and I launched a backchannel communication to Dubai to meet for negotiations.
We agreed to meet in London. I invited Pat Healy, a Nasdaq Board member who lived in London, to join us, adding some international experience to the team. As a newbie to dealing with Middle Eastern business, I was concerned about potential cultural landmines, but as it turned out, my worries were unfounded. The executives from Dubai, Essa Kazim and Soud Ba’alawy, were highly educated, smart, ambitious businessmen, and our negotiations had a tone of mutual respect from the get-go. We met with them on a number of occasions, culminating in a seventy-two-hour marathon session in a hotel near Heathrow Airport in September 2007. The deal on the table was one in which the Dubai group would become major shareholders in a newly merged Nasdaq-OMX company and also receive the rights to the exchange technology business in certain countries, as well as a chunk of Nasdaq’s plentiful LSE shares. Nasdaq would take a stake in the fledgling Dubai International Financial Exchange. All in all, it was a complicated negotiation. I sometimes felt like we were playing a game of Risk, shuttling between conference rooms and carving up the world. Adena was in her element, demonstrating extraordinary endurance and masterfully juggling the complex three-way deal.
Negotiations like this can go wrong in a myriad of ways, and I developed a set of personal rules that served me well.
1. Don’t Make Big Decisions When Jet-Lagg
ed. Always sleep on important decisions. Many times the answers reveal themselves in the clear light of morning.
2. Put Yourself in the Shoes of the Other Party. Part of good negotiating is knowing and appreciating what the other person is trying to get out of the deal and working toward a win-win.
3. Remember, It’s Never Black-and-White. In dealmaking, there are always shades of gray, and it’s part of your job to wrestle with the complexity. If it was simple, you wouldn’t be making a premium salary.
4. Identify the Facts That Matter. There may be fifty facts on the table, but you need to figure out which are the most important ones. Smart people can always come up with more and more relevant facts, but good negotiators can identify which facts are dominant.
By the middle of that week, we finally had the basic components of a deal in place. We knew we couldn’t keep the information under wraps for long, so we decided to fly to Stockholm and announce it right away. Our communications team called a press conference, and every press outlet in the region immediately agreed to come. In Sweden, this was a big deal, and it was covered as a nationally important story.
As we looked out at the assembled reporters, once again it seemed like we had reached the finish line in this multimonth process. But when I took the microphone to give my own remarks and take questions from the audience, a curveball question took me completely off guard. One of the assembled reporters asked, “What do you think about the Qatar bid?”
What? What Qatar bid? What the heck is this person talking about? I thought to myself. Are they mixing up Qatar and Dubai? Obviously, Qatar and Dubai are different places, but in my sleep-deprived state I confess to a split second of doubt.
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