July 26, 2011 / 8:03 PM / in 6 years

DEALTALK-Nasdaq sticking to basics as M&A speculation hangs

(For more Reuters DEALTALK stories, click on [DEALTALK/])

* Exchange operator reports Q2 earnings Wednesday

* Likely to temper LSE deal buzz, stress share buybacks

* Price, weak P/E ratio sticking points to any buyout

By Jonathan Spicer

NEW YORK, July 26 (Reuters) - Nasdaq OMX Group NDAQ.O, the exchange often seen as most likely to re-stoke the industry’s global merger frenzy, will instead probably focus on business basics for now.

The trans-Atlantic market operator has privately played down the possibility of a deal with London Stock Exchange Group Plc LSE.L in recent weeks, according to an investor who held talks with management and to a published analyst note.

Nasdaq -- whose unsolicited $11 billion bid for rival NYSE Euronext NYX.N collapsed in May, leaving it partnerless in an industry that’s scrambling to consolidate -- will again temper speculation around an LSE tie-up when it reports quarterly results on Wednesday, a source familiar with the plan said.

LSE -- also partnerless after dropping its $3.8 billion offer for Canada’s TMX Group Inc X.TO last month -- is seen as a good fit for U.S.-based Nasdaq.

But Nasdaq Chief Executive Robert Greifeld will likely stress the importance of more share buybacks and organic earnings growth on Wednesday, according to the source, as Nasdaq attempts to boost its relatively weak share valuation.

The company’s 12-month price-to-earnings (P/E) ratio, a measure of expected growth, was 10.9 on Tuesday, according to Thomson Reuters data. That’s lower than NYSE Euronext at 15.3, and LSE at 18.5 -- and would make any stock-based takeover difficult and expensive for Nasdaq.

“While M&A remains a longer-term priority, near-term deal activity appears to be unlikely in our view,” Jefferies analysts wrote in a July 13 note, after a meeting with Greifeld. “Management was more focused on potential share repurchases than any large-scale M&A transactions.”

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Dealtalk: Nasdaq must hit the right note: [ID:nL6E7I514F]

LSE’s future in Middle East hands: [ID:nL6E7HU06Q]

Exchange merger map: r.reuters.com/hav32s

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One sticking point with LSE could be price.

Borse Dubai and the Qatar Investment Authority own more than a third of LSE’s shares between them, and media speculation over Qatar’s 15 pound-per-share LSE price target sets a high hurdle for any buyer, including Nasdaq.

Nasdaq bid 12.4 pounds per share for LSE in late 2006, when it made two unsolicited and ultimately failed bids for the British bourse. Since then, LSE shares are off about 20 percent while Nasdaq shares are down about 40 percent.

“Nasdaq’s high degree of leverage and low stock price likely preclude a takeover offer that would be high enough to warrant the attention of LSE shareholders,” CLSA analyst Rob Rutschow wrote in a note last week.

While some deals have fallen apart this year, Deutsche Boerse AG’s DB1Gn.DE planned $9 billion acquisition of NYSE Euronext is now being considered by European and U.S. antitrust regulators. [ID:nN1E76E16C]

Greifeld, a dealmaker with a mixed record since he took Nasdaq’s reins back in 2003, still has a hand in M&A: the exchange has a pending bid for a minority stake in European clearinghouse LCH.Clearnet. [ID:nN17176185]

But for now the bread-and-butter business of winning new listings, sealing technology contracts, and wresting trading volume from rivals appears the focus for Nasdaq.

The company declined to comment ahead of its results.

Analysts on average expect the Nasdaq Stock Market parent to have earned $107 million in the second quarter, or 60 cents per share, according to Thomson Reuters I/B/E/S, about flat compared to a year ago.

Weaker equity trading volume in the second quarter was partly offset by Nasdaq’s market share gains and U.S. and Nordic European derivatives businesses, analysts said. (Reporting by Jonathan Spicer; Additional reporting by Paritosh Bansal; Editing by Richard Chang)

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