Nasdaq and LSE: who lost?

I haven't written in a while because I was busy sabotaging an international stock exchange hostile takeover. Which brings me to this question: now that Nasdaq has admitted defeat on its efforts to take over the London Stock Exchange at £12.43 per share (with the LSE trading well above that over the past few months), who is screwed the most?

First, Nasdaq: it lost on its bid and now faces a transatlantic NYSE/Euronext monster. It still owns nearly 30 percent of the LSE. While it bought most of those shares when the LSE was trading at £11 (LSE shares closed at £12.82 today), it will be hard to unload that position. The LSE has launched a £250 million share buy-back, but this is still small potatoes against Nasdaq's holdings. Nasdaq can hold on to those shares to deter other bidders, but that likely will prevent it from making other link-ups at the same time that the NYSE is looking at markets in India, Japan and elsewhere.

On the plus side, however, Nasdaq has avoided a classic pitfall of many a merger — paying too much. If Nasdaq's board is right and the current price of the LSE is overvalued, then the hedge funds that bought LSE shares after Nasdaq announced its intentions will suffer big time. Despite the LSE's press about how it is stealing market share from New York, there are serious questions about its future profit margins, particularly (if Nasdaq is to be believed) after the EU MiFID (Markets in Financial Instruments Directive) fully comes online.

London will also look to go on the offensive, but the fact that it is a perennial prey rather than a hunter may be telling. While it has a new technology platform coming online, so does everyone else. And the LSE's share buy-back (at £12.70 per share), designed to make future takeover attempts harder, will also chew up cash that the LSE could be using on future technology modernizations. In this sense, while it is in a decent position at the moment, the LSE doesn't have the deep pockets of either the NYSE or Nasdaq when it comes to future development. While the LSE has kept out ahead of the New York exchanges because of quirks in the US system (quirks that essentially let New York operate in a hothouse, sheltered from outside competitive forces), now that New York is facing competition, it seems to be showing itself surprisingly aggressive.

So who's screwed the most? Hard to say at this point, but my guess is the LSE's hedge fund shareholders. They gambled that Nasdaq would raise its price rather than lose, and they lost instead.