Instinet to Buy Rival Island ECN
Instinet Group Inc., a leading electronic stock trading network controlled by Britain’s Reuters Group, has agreed to buy rival Island ECN Inc. for about $508 million in stock.
The two trading networks account for about 22% of the share volume traded on Nasdaq. Their proposed union is seen as a defensive effort to stave off the threat from Nasdaq’s upgraded trading system, SuperMontage, to be launched next month.
Industry analysts say such consolidation is almost inevitable as electronic brokerages fight to survive an industry slump.
Reuters Group holds an 83% stake in Instinet. Reuters Chief Executive Tom Glocer said Reuters this year installed new management at Instinet and worked to cut the network’s costs and increase its market share.
“The acquisition of Island caps this overall plan and provides Instinet with the strongest management team in the industry,” Glocer said.
The deal is subject to regulatory approval.
Instinet was a pioneer in the electronic brokerage business, trading shares anonymously and often more cheaply than long-established exchanges such as Nasdaq. The two-year decline in stock prices has dampened investor enthusiasm and dented its business, and many competitors such as Island have emerged.
Instinet earned $145 million in net income last year on sales of $1.5 billion. Privately owned Island earned a pretax profit of $40 million in 2001 on sales of $166 million.
The two have roughly equal shares of the market as measured by trading volume.
Nasdaq’s plan to introduce SuperMontage in July has added to the pressure on Instinet. Some believe that investors might find it more straightforward to buy and sell Nasdaq-listed shares on SuperMontage instead of using independent platforms such as Instinet.
Under the deal, Island Chairman Ed Nicoll would become Instinet’s chief executive. Instinet Chairman Andre Villeneuve would continue in his position.
Instinet shares rose 5 cents to $7.10 and Reuters American depositary receipts fell 74 cents to $38.81, both on Nasdaq.
