LSE Bid Failure Puts Pressure on Nasdaq

The Nasdaq Stock Market Inc., having failed in its $5.3 billion hostile takeover bid for the London Stock Exchange, is now seen scrambling to lay out a European strategy that will appease its shareholders and ensure that it won't be left behind as other major exchanges consolidate.

The world's largest electronic equities exchange was dealt a crushing defeat Saturday by LSE shareholders who overwhelmingly opted not to accept the bid. The Nasdaq's dogged pursuit of the British bourse lasted almost a year and left Nasdaq empty-handed as rival operators NYSE Group Inc. and Euronext NV

integrate into the first marketplace to span the Atlantic.

Analysts say Nasdaq CEO Robert Greifeld is now under intense pressure from investors to cut a deal that will keep his exchange competitive. Wall Street could get a glimpse at Greifeld's next move when he speaks to analysts after the Nasdaq reports third-quarter earnings Tuesday.

"He's built up so much expectation that if he were to abandon Europe there would be very strong disappointment among shareholders," said David Easthope, an analyst with business consulting firm Celent. "Shareholders are looking for them to execute on two strategies: Get your European strategy in place and simultaneously execute one in Asia."

That's exactly what the New York Stock Exchange has accomplished. So far this year, the Big Board closed the deal to buy Paris-based Euronext, secured a stake in India's National Stock Market, and embarked on a broader alliance with the Tokyo Stock Exchange that could lead to a combination.

There is also speculation that NYSE Chief Executive John Thain might take advantage of the Nasdaq's failed bid to make his own run at the LSE, either through an acquisition or most likely a broad alliance. The NYSE, which declined to comment about such a deal, would face not only competition issues in Europe but also be forced to contend with the nearly 30 percent stake in the London exchange that the Nasdaq still holds.

Meanwhile, a spokesman for the LSE told reporters in London that the exchange is already working on a strategic alliance with its Tokyo counterpart.

The fierce rivalry between the NYSE and the Nasdaq is palpable. They are fighting for market share in the U.S., where regulations allow stocks listed on one exchange to be traded on another. They have also been gunning for more stock listings, sometimes persuading companies to defect from one to the other.

The Nasdaq has bragging rights for the speediest stock executions, but the NYSE's recent introduction of electronic trading is designed to challenge that.

Until Saturday's defeat, Greifeld had a string of successes at Nasdaq. He's taken a market that was once run by the nation's broker-dealers and turned it into one of Wall Street's hottest public companies, bought electronic trading platform Instinet for its technology and has taken trades away from the NYSE.