Sweden’s financial regulator could scupper Borse Dubai’s $4 billion bid for Scandinavian exchange owner OMX if it finds that the state-owned holding company breached Swedish law in its recent acquisition of almost a quarter of the company’s shares through options agreements with hedge funds.
The Financial Supervisory Authority (FSA) has demanded details of the options contracts Borse Dubai used to acquire 23.5% of OMX by Monday, before it gives regulatory approval to the acquisition – and therefore also to Borse Dubai ‘s hostile takeover bid, reported UK newspaper the Financial Times on Saturday.
After days of speculation, Borse Dubai launched a $4 billion cash offer for OMX on Friday, trumping an agreed deal with US exchange Nasdaq.
Borse Dubai said it wanted to create a group with global reach. OMX has consolidated stock and derivatives exchanges in Sweden, Denmark, Iceland, Finland and the Baltic countries of Estonia, Latvia and Lithuania.
The offer came after the FSA given Borse Dubai a deadline of Thursday to clarify whether it was launching a takeover bid for OMX, after the firm bought 4.9% of OMX at 230 Swedish crowns ($33.15) per share and signed options to acquire an addition 23.5%.
It was previously reported that Borse Dubai had signed options to acquire an additional 22.5%.
The way Borse Dubai has built up its stake in OMX has raised eyebrows in Sweden because it did so without first informing the FSA. Swedish law requires any purchase of over 10% to have regulatory approval.
OMX’s management have also expressed deep reservations about the tactics Borse Dubai used to increase its stake in the company.
“Borse Dubai has not sought the approval of the board or management,” Urban Backstrom, OMX’s chairman, told the Financial Times. “This is one of the most peculiar ways to build trust I have ever experienced.”
After the formal bid from Dubai, OMX’s board said it was studying the offer and would come back to shareholders shortly.
Investor AB, a prominent Swedish shareholder with 10.7% in OMX, said it would analyse Borse Dubai’s offer but that Nasdaq’s offer may offer better value in the long-term.
The Swedish government, which has a 6.6% stake in OMX, had no comment on the bid.
Borse Dubai’s offer of 230 crowns per share values OMX at 27.7 billion crowns ($3.98 billion). That compared with Nasdaq’s cash and share bid currently worth 198 crowns per share or $3.7 billion.
Nasdaq has labelled its rival’s offer “inferior” and said it would provide better long-term value, while boosting the Nordic region as a financial centre, reported newswire Dow Jones.
The US exchange also said it remained committed to OMX and is expected to increase its offer as early as next week when Nasdaq officials will be in Stockholm.
Despite opposition to its bid by OMX management and shareholders, Borse Dubai could still succeed thanks to the large number of hedge funds that have recently bought into OMX.
Hedge funds have acquired around a quarter of OMX stock in anticipation of a full-blown takeover war, and may prefer Borse Dubai due to the higher price it is offering.
If more hedge funds decide to sell to Borse Dubai, allowing it to raise its stake further, other institutional investors may follow, analysts say.
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