Reuters considers taking back full control of Instinet
Financial Times; Apr 2, 2002
By CARLOS GRANDE, JAMES HARDING and JOHN LABATE
Reuters, the news and information group, is considering strategic options for Instinet, including buying out the minority investors and taking back full control of the US-listed electronic share trading service.
Shares in Instinet, which is 83 per cent owned by Reuters, have declined by more than 50 per cent since Instinet floated on Nasdaq in May at Dollars 14.50.
Reuters believes a further long-term slide could make Instinet worth buying back, at about Dollars 4 a share, for its cash alone. Instinet shares traded at Dollars 6.20 in early trading on Thursday.
The idea is one option being considered for Instinet, which last week suprised markets by warning it was likely to post a first-quarter operating loss.
Buying the company back could dent Reuters chances of spinning out other units, but executives are said to be more focused on building value inside the core Reuters business than on listing minority shareholdings in subsidiaries.
No decision has been made. But Reuters is understood to be open to alternatives such as a trade sale of Instinet or a merger with another electronic broker. Instinet held talks about an alliance with the American Stock Exchange prior to its initial public offering last year, but the talks ended without a deal. However, Reuters is likely to want to maintain as close a relationship as possible with Instinet, as the UK group has seen its business grow beyond the provision of information to systems, which enable clients to put news and analysis to use in the market.
Reuters has publicly supported the plan to cut Dollars 120m a year of costs announced by Instinet.
Reuters and Instinet yesterday declined to comment.
Turmoil at Instinet, which is cutting jobs and margins to compete against price-cutting rival services such as Island, has had a knock-on effect on Reuters shares. Reuters shares last month hit a five-year low of 494p and is 50 per cent off its 52-week high.
Several analysts downgraded earnings forecasts for Reuters because of fears Instinet's sell-side activities are rapidly becoming commoditised against a background of depressed volumes in US share trading.
Reuters is thought to be keen to resolve the company's relationship with Instinet this year and free up management time to concentrate on ongoing restructuring at the parent group.
Reuters' structure has been reorganised and 1,800 jobs cuts announced since October in a drive to re-focus its customer divisions and technology base. Lex, Page 14 www.ft.com/media
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