Dubai firm’s Nasdaq deal draws review

The Nasdaq Stock Market Inc. agreed Thursday to a deal that would make state-controlled Borse Dubai its biggest shareholder. But the arrangement immediately drew scrutiny from President Bush and U.S. lawmakers, who said they would review the deal’s effect on national security.

The deal could face another obstacle as well: the ambitions of Qatar, a rival Persian Gulf state to Dubai.

Nasdaq, the second-largest U.S. stock market, said it would sell a 19.9% stake to Borse Dubai, in another in a rash of transactions that have seen financial markets worldwide link up.

Although exchange rules would limit Dubai’s voting rights in Nasdaq to 5%, Bush and congressional leaders said they would review the transaction.

“We’re going to take a good look at it, as to whether or not it has any national security implications involved,” Bush said at a news conference in Washington.

Under terms of the deal, Nasdaq would sell the majority of its 31% stake in the London Stock Exchange to Borse Dubai in return for an agreement that may clear the way for Nasdaq’s planned $3.91-billion purchase of Sweden’s OMX market. Nasdaq and Borse Dubai had been competing for the OMX.

Nasdaq also would acquire a one-third stake in the state-controlled Dubai International Financial Exchange.

However, a potential obstacle to the deal arose Thursday when the Qatar Investment Authority said it had bought a 20% stake in the London exchange and a 10% stake in the OMX, raising the possibility that it could act as a spoiler.

U.S. authorities have other concerns. Sen. Charles E. Schumer (D-N.Y.), chairman of Congress’ Joint Economic Committee, sent a letter to Treasury Secretary Henry M. Paulson Jr. asking for a security review. “It is indisputable that this deal would result in a foreign government having a large influence on the decisions made by a critical part of the U.S. economic infrastructure,” Schumer wrote.

DP World, Dubai’s port company, scuttled plans in March 2006 to pay $6.8 billion for ports in New York, New Jersey, Philadelphia, Miami, Baltimore and New Orleans after some lawmakers raised objections.

Nasdaq Chief Executive Robert Greifeld told reporters that the firm has “had some outreach to politicians today and the response has been very favorable. This is obviously good for Nasdaq, it’s good for New York and it’s good for the U.S. capital market. This will strengthen our hand with respect to international listings.”

Nasdaq shares rose 49 cents to $36.51. They are up 18.6% this year.