Archipelago in line to pick up Instinet
By Lina Saigol and Tim Burt in London and James Politi in New,York
Published: January 21 2005 02:00
Archipelago Holdings, owner of ArcaEx, the largest electronic stock market, has emerged as the frontrunner to buy Instinet, the electronic brokerage owned by Reuters, according to people close to the situation. The deal could be valued at between $2bn and $3bn.
Archipelago is thought to be interested primarily in Instinet's electronic communication network (ECN), called Inet, rather than the institutional brokerage part of the business.
Rival networks were said to be pursuing Inet, hoping to cut costs and combine technology amid intense competition in electronic markets.
Inet, which handles trading of about 500m shares a day, was formed by the merger of the ECN businesses of Instinet - in which Reuters has a 62 per cent stake - and Island, the trading platform acquired in 2002.
The volume-driven business provides Inet's US broker-dealer customers one of the largest liquidity pools in Nasdaq, charging traders a fee per share for access to the electronic market.
Reuters yesterday re-iterated that Instinet, dominated by its institutional brokerage business, was not seen as a core asset long-term. The company confirmed it was looking at "opportunities to extract value from its holding" including a possible sale, merger or other business combination.
Jerry Putnam, Archipelago chief executive, has in the past acknowledged the company's acquisitive interest.
In the first half of last year, Instinet reported operating profits of £22m ($41m) following a significant restructuring - reversing losses of £14m in the first half of 2003. While admitting the likelihood of talks over a possible Instinet sale, Reuters has insisted that it does not have to dispose of the asset.
Set up in 1997 in the wake of a Securities and Exchange Commission ruling on how Nasdaq stocks could be traded, Archipelago was one of the original four electronic exchange networks. In 1999, it received equity investments from Goldman Sachs, JPMorgan and Merrill Lynch, among others.
The group merged with Redibook ECN four years later as part of its aim of doubling its trading volume of Nasdaq-listed stocks.
This month, it announced the creation of the first integrated equities and options exchange in the US by taking over PCX Holdings, the parent of the Pacific Exchange.
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