Mild reaction in U.S. capitol to a Dubai Nasdaq stake


By Stephen Labaton and Julia Werdigier

WASHINGTON: As the Bush administration vowed to vigorously review for national security concerns a proposed investment in the Nasdaq Stock Market by a Dubai-controlled exchange, several senior Democrats and Republicans said Thursday that the transaction did not trouble them and predicted it would be approved.

The deal, announced Thursday morning, would be among the first to be examined under a law adopted two months ago in response to a 2006 deal sought by another company controlled by Dubai. That deal involved the acquisition of a company that managed port operations in the United States. It resulted in sharp criticism of the Bush administration for having approved the transaction, and the buyer, DP World, ultimately agreed to sell the American holding.

The recent law codified and expanded the mandate of an interagency committee, led by the Treasury Department, that reviews foreign investments for national security issues.

While the law does not take effect until next month, the administration said it would apply it in the review of the investment in Nasdaq. In advance of the deal, several lawmakers and other officials appear to have received briefings and assurances that it would not pose national security problems.

At a news conference this morning, President George W. Bush said the administration would closely scrutinize the deal. "We have a reform process in place that will be able to deal with this issue," he said. "We're going to take a good look at it as to whether or not it has any national security implications involved in the transaction. And I'm comfortable with that process."

Borse Dubai, the government-controlled exchange, agreed to take a 19.9 percent stake in Nasdaq and buy Nasdaq's 28 percent stake in the London Stock Exchange. Dubai will in turn bow out of the bidding for OMX, a Stockholm-based equity market operator, ending a six-week bidding war with Nasdaq. Separately, Qatar, which competes with Dubai as a financial center in the Gulf region, bought 20 percent of the London Stock Exchange and about 10 percent of OMX.

By buying into Nasdaq, Borse Dubai would gain expertise. For Nasdaq, the deal means that its chief executive, Robert Greifeld, can fulfill his goal of creating a more global stock market. He has failed to combine with the London exchange in the past, while the rival NYSE Group successfully merged with Euronext.

Borse Dubai's chairman, Essa Kazim, said, "Our primary objective is to build a world class, growth-oriented exchange out of Dubai and to become the center for capital markets activities in the emerging markets."

Dubai would get 2 of the 16 board seats once Nasdaq merged with OMX and not more than 5 percent of the voting rights. The deal, which would create a stock market operation from the United States across Europe to the Middle East, is still subject to a long list of conditions, including the national security review, and approval by stockholders of the companies involved.

Senator Christopher Dodd, the chairman of the Senate Banking Committee and the main author of the recent law, called for an aggressive review of the transaction. Dodd, a Democrat from Connecticut, added that as a general matter, he supported foreign investment in the United States that "promotes growth and creates good jobs."

Senator Charles Schumer, Democrat of New York, was one of the few members of Congress to raise questions about the national security implications of the deal, though his remarks were not considered as hostile to the deal as his comments on the Dubai ports transaction were.

"At this early stage, this deal gives me pause," Schumer said. "While I am and have been a big proponent of foreign investment in the United States, we must still be careful of the kinds of investments made in our critical infrastructure, financial exchanges, utilities and other areas that are vital to the operation and security of our country."

In the House, the speaker, Representative Nancy Pelosi of California, and Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, both said that they were not alarmed by the investment and that it was different from the ports deal.

"In the ports deal, the concern was smuggling something or someone dangerous into ports," Frank said. "What are we talking about here — smuggling someone onto a stock exchange?"

The senior Republican on the committee, Representative Spencer Bachus of Alabama, also praised the deal.

"This is a win-win for both exchanges," he said. "Nasdaq's brand is respected worldwide. This is exactly the kind of foreign investment in U.S. companies we should foster and encourage."

The deal was also applauded by Mayor Michael R. Bloomberg, who said it was "good news for both New York and the nation."

"This deal will extend Nasdaq's reach in both Europe and the growing markets of the Middle East and lead to higher regulatory standards in Dubai," Bloomberg said. "Like all such deals, this one should undergo all the appropriate scrutiny, but I hope that that discussion does not devolve into the kinds of demagogic attacks that could cost Americans jobs and threaten New York's place as the financial capital of the world."

The review by the interagency Committee on Foreign Investments in the United States will begin with a 30-day examination of the deal for national security implications. The new law expanded the list of security factors to be considered, although it left many issues to the discretion of the administration. While requiring the committee to review the deal for risks associated with foreign investment in "critical infrastructure," the law never defines the term.

If, after the initial review, the committee finds no problems, then it transmits its conclusions to Congress. But if issues are unresolved, then a second 45-day investigation would be undertaken to give the companies time to address any objections.