Reuters plans Instinet flotation
By Ashling O'Connor, Media Correspondent
Published: April 3 2001 16:26GMT | Last Updated: April 4 2001 04:05GMT
Reuters, the news and financial information group, on Tuesday defied a hostile IPO market by forging ahead with plans for a partial flotation of Instinet, its electronic broking arm.
The company said it would float up to 14.1 per cent of Instinet on Nasdaq within an indicative price range of $11-$14 a share valuing the business at $2.6bn-$3.4bn.
It was still the intention to go ahead with the IPO in the first half of the year, said Peter Job, chief executive. The move is expected to raise about $420m at the mid-price, of which $150m will be used to pay off debt.
Reuters shares fell more than 9 per cent to close down 79p at 775p in London on Tuesday.
Analysts expressed surprise at the decision to push ahead with the plan in the current market climate, questioning whether "corporate pride" was preventing a reversal of strategy. The IPO was not aggressively priced at under 10 times underlying earnings, they said.
Reuters has already this year ditched plans for a flotation of the Greenhouse Fund, its technology-focused investment vehicle. Furthermore, the company has seen the value of Tibco, its Nasdaq-listed software subsidiary, slump by 95 per cent since the height of dotcom mania a year ago.
"It [the Instinet IPO] is as much symbolic as achieving anything," said Anthony de Larrinaga, media analyst at SG Securities. "It looks like it is priced to go, but will it?"
Instinet, the world's biggest electronic agency securities broker that trades in 40 markets, relies on Nasdaq volumes for its revenues. In February, when Reuters registered the IPO with the Securities and Exchange Commission, Mr Job said the flotation was a "natural evolution" for the business and would provide it with the currency for acquisitions.
Since then, however, market sentiment has substantially worsened. After an encouraging start to the year, volumes on the high-tech exchange have fallen dramatically and year-on-year growth is expected to be flat to negative in April. Instinet's profit margins have fallen by about half since the start of the year.
Nicola Stewart, media analyst at Commerzbank, said the IPO would land Instinet a double blow by more closely aligning it to the fortunes of Nasdaq. "If the markets carry on being this volatile, I don't think there is any possibility of floating it at all."
There were further concerns about increased competition from rival operators of electronic "after hours" trading platforms, most particularly Nasdaq itself, and the effect of an economic downturn on Reuters' core business, she said.
Banks cutting staff might further trim costs by taking cheaper Reuters services over its proprietary terminals.
Reuters defended its decision to give Instinet, acquired in 1987, greater independence from its parent company and said the move would "crystalise" value for shareholders.
Geoff Wicks, director of corporate relations, said: "We are doing this for strategic reasons, not to raise cash. Under those circumstances, we do not see any need to delay or postpone in the current market conditions."
Credit Suisse First Boston and Deutsche Banc Alex Brown are lead underwriters for the IPO. |
