Tuesday, April 18, 2006

NASDAQ getting financing from BofA to fund LSE share purchase

The surprising 15% investment in the LSE made by NASDAQ scared many NDAQ investors, as they wondered where the $800 million would come from to make the purchase. Nasdaq has announced that Bank of America had provided some of the financing.

"The electronic stock market announced the new borrowing arrangement in a Securities and Exchange Commission filing late yesterday. Nasdaq paid $781.7 million for a 14.99% stake in the London exchange last Tuesday and today is scheduled to replace a $748.1 million credit facility arranged by J.P. Morgan Chase & Co. and Merrill Lynch & Co. late last year with the money from the Bank of America loan. That leaves Nasdaq about $395 million to possibly buy more shares of the LSE, which many analysts expect it to do as early as this morning."

Interestingly, hedge funds are now salivating at the prospect of investing in the LSE. In their view, the NDAQ investment is a floor on LSE's shares.

"Nasdaq has effectively put a floor on the share price at least in the short term," said one hedge fund manager who declined to be identified.

Chesapeake Partners Management Co, Eton Park International LLP, D.E. Shaw & Co and Halcyon Asset Management LLC are among the largely U.S.-based funds to reveal stakes in the LSE over the last few days. The stakes have been built mainly through purchases of contracts for difference or swaps.

"Whether they (Nasdaq) decide to hold onto the stake for six months or longer ... The risk-reward of owning LSE shares has changed because of that stake. There is not as much risk," the hedge fund manager said.

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