Welcome to Du-Buy?

By Scott MacLeod

Arab sheikdoms are steeped in conservative desert traditions, which discourage risky ventures in everything from marrying daughters to herding camels. The old rules, however, don't apply to the Persian Gulf's new generation of rulers. They may still wear the flowing thobe of their ancestors, but their mind-set is all pinstripe when they are taking on the modern world.

Or, to be more specific, buying it. In September another dizzying array of multibillion-dollar deals became public, notably Dubai's bid to acquire a 20% stake in NASDAQ, the high-volume New York City-based stock exchange known for its listing of star tech firms including Apple, Cisco Systems, Dell, Microsoft and Yahoo! Dubai's move demonstrates the fulsome financial power of a region possessing tidal liquidity--as much as $2 trillion, by some estimates--built up by two years of oil prices topping $60 per bbl. "Nothing can stop them," says Hassan Heikal, CEO of EFG-Hermes, the region's leading investment bank. "These guys have investment managers as good as their counterparts in global institutions."

The early signs are that Dubai's NASDAQ deal will not meet the kind of congressional opposition--part security concerns, part xenophobia--that last year forced a Dubai entity, DP World, to sell its control of U.S. port operations. If the deal goes through, the government-controlled Borse Dubai would get 5% of the voting rights and two seats on NASDAQ's 16-member board. Dubai will also get the 28% share that NASDAQ holds in the London Stock Exchange (LSE). In the past year, Dubai companies have also gambled on a $5 billion investment for a 9.5% share of MGM as well as a piece of MGM's new CityCenter in Las Vegas, fashioned a $942 million takeover of the retailer Barneys New York and bulldozed a $1 billion deal for John Laing Homes, the second largest privately held builder in the U.S.

Not to be outdone, Dubai's regional rivals have been making some bold global deals of their own. Doha's Qatar Investment Authority is seeking some $2 billion worth of shares in two European stock exchanges, the LSE and Stockholm's OMX, as well as the purchase of the U.K. supermarket giant J Sainsbury. Abu Dhabi, like Dubai, a constituent part of the United Arab Emirates, says its Mubadala Development Co. will pay $1.35 billion for a 7.5% share of the U.S.-based private-equity investment firm Carlyle Group, which owns a diverse range of megacompanies, from chipmaker Freescale Semiconductor and nursing-home operator Manor Care to airplane-parts manufacturer Sequa Corp.

Who are these guys, anyway? Dubai's Sheik Mohammed bin Rashid al-Maktoum, Qatar's Sheik Hamad bin Khalifa al-Thani and Abu Dhabi's Sheik Khalifa bin Zayed al-Nahayan are sons of gulf royalty. But these are not their fathers' investments. Gulf money 20 years ago was being sunk into safe-bet, low-yield U.S. Treasury bonds--or the arms bazaar. Some recent deals--Dubai's brief holdings in DaimlerChrysler and Madame Tussauds, for example--have been opportunistic. But Dubai's bid for NASDAQ is part of a vision for positioning the city-state as a world-class business center. "Dubai has managed in the last 30 years to become the commercial hub of the region," says Soud Balawi, head of Dubai Investment Group. "We want Dubai to become the financial hub as well."

Indeed, the NASDAQ deal illustrates the sophistication of gulf boardrooms, not to mention a determination to proceed with economic development in spite of the region's political instability. Borse Dubai originally got into a bidding war with NASDAQ over OMX. But when an intermediary suggested that they form a partnership instead, Borse Dubai quickly agreed. According to Borse Dubai chief Essa Kazim, the new arrangement gives Dubai access to even more expertise and global investors than it would have received in a partnership with OMX alone. "We felt we can complement each other," Kazim says. "NASDAQ can continue to expand in Europe. We needed a brand and technology to facilitate the attraction of more companies. It was a win-win situation."

Not for everyone. The deal highlights the competition among the cash-rich gulf states for clout and glory. As Dubai was finalizing its plans to buy OMX and trade it for 20% of NASDAQ, Qatar suddenly triggered a potential new bidding war by swooping up a nearly 10% share of the Nordic exchange. There may be room for more than one financial center in the region. Yet Dubai and Qatar seem bent on a showdown, with Dubai betting on its venture with the Americans and Qatar with the Europeans. "Both of them," one banker tells Time, "think there can only be one megaexchange in the Middle East." But they have jointly served notice to New York City and London that the gulf is a powerful new player on the world's financial stage.