I had a flying visit to London last week. It’s always good to see the City, which – despite global gloom and doom in the financial markets – is as busy and gossipy as ever. A surprising amount of business is still done over the “long lunch” which, though it may not be as self-indulgent as before, is still alive and thriving in the Square Mile.
My lunch companion was one of those people the Financial Times now calls “a person familiar with the situation”, when it wants to give a story authority, but without revealing the source. The situation my friend was familiar with is perhaps the most intriguing in Dubai business at the moment – the delicate, five-way choreography being played out over the future of the London Stock Exchange (LSE).
New readers start here: the LSE, Borse Dubai, the Qatar Investment Authority (QIA), Nasdaq of New York and OMX of Sweden are locked in a relationship of byzantine complexity involving cross-shareholdings, shifting alliances and trading agreements. The outcome will decide the future of financial markets east of Mumbai, and also determine whether Qatar or Dubai will be the premier market in the Gulf.
The prize is the LSE itself, still – despite efforts of Frankfurt and others – the most important financial market in the European time zone. The LSE, under the formidable leadership of chief executive Clara Furse, has seen off four takeover bids, from Americans, Australians and Germans, but now finds itself in a delicate position.
Gulf investors dominate the share register, with Borse Dubai the biggest at 20 per cent and Qatar next with 14 per cent. The Gulf stake was higher than that at one stage, but the two were diluted down from near-majority control by another strategic move by Furse – a link up with the Italian markets. My co-luncher is on the Qatari side. The QIA has signed up some pretty expensive London advice, and he is on that pay-roll. So I got an overview of the situation as seen through Qatari eyes – and very interesting it was too.
For one thing, he was scornful of the idea QIA would bid for the whole of LSE, as has been suggested in some newspaper reports. Qatar has close personal and historical links with LSE, and Furse has made it clear that a full takeover is not in her plans – especially if it could be seen as in any way hostile.
Second, I had not appreciated the extent of the suspicion and distrust with which Dubai is viewed by LSE. Borse Dubai got its stake in LSE last summer as a result of a complicated manoeuvre involving Nasdaq and OMX. The move was regarded at the time as a visionary strategic play by Essa Kazim, the head of Borse Dubai, but London was affronted – it felt like a plaything being tossed around between Nasdaq (one of the previous hostile bidders) and Dubai.
The LSE does not like surprises, and the speed with which Dubai moved last summer was indeed stunning – there was no time for the polite niceties Furse regards as so important. Dubai has to address this issue urgently.
The other factor aggravating the Dubai-LSE situation is the relationship with OMX of Sweden. Despite a shareholding of 10 per cent in the Scandinavian holding company by QIA, Borse Dubai is moving inexorably towards full ownership and control of OMX, and this worries London. Rather surprisingly, I think, given London’s unchallenged leadership in European markets, the LSE still regards OMX as a serious threat, backed by state-of-the-art trading and settlement systems.
Finally, LSE is still concerned about the intentions of Nasdaq, which has tied up a strategic alliance with Dubai via another deal – the joint venture (we await full details) between Nasdaq and Dubai International Financial Exchange.
So, for a stack of reasons, LSE is keener on Qatar than Dubai. This does not make a great deal of sense: Dubai is generally regarded as being way ahead of its Gulf neighbour in the development of a financial market, and you would have thought it was in London’s interests to link up with the more advanced financial centre – Dubai. But perception is all-important in these great international deals, and Dubai has to take this into account before it proceeds. The LSE must be persuaded and enticed into believing the benefits of a Dubai link-up will outweigh those of Qatar.
One solution being mooted is a share-swap involving the cross-shareholdings – most recently, it was suggested Dubai should give up its 20 per cent in LSE in exchange for Qatar’s 10 per cent in OMX. This is unacceptable from a Dubai point of view – it already has majority control of OMX, whereas its holding in LSE is a serious blocking stake.
Some equalisation of the Qatar-Dubai holdings in LSE is also proposed as a solution, and there is logic to this – there is no point in the two Gulf states, which are enjoying increasingly cordial relations, fighting it out over the LSE. But neither wants to miss out on the top prize – access to London’s huge trading volumes in equities and IPOs.
Great business deals often fall apart at the last minute, and, having put itself in such a potentially commanding position, Dubai must not let that prize slip through its fingers now.
Borse Dubai must charm LSE to win