NEW YORK — At the end of a week that saw the New York Stock Exchange's deal to buy Archipelago LLC, Nasdaq Stock Market Inc. confirmed Friday it will buy Instinet Group Inc. (INGP) for about $1.88 billion in cash.
Nasdaq's shares were recently halted and last traded at $12.20.
In a press release Friday, Nasdaq said it will also sell Instinet's Institutional Broker division to private equity firm Silver Lake Partners.
Following the consummation of these transactions, Nasdaq will own INET ECN.
Instinet also entered into a deal to sell its Lynch Jones & Ryan subsidiary to Bank of New York Co. prior to completion of the Nasdaq transaction.
Nasdaq said the cash consideration paid to Instinet shareholders will consist of about $934.5 million from Nasdaq, about $207.5 million from Silver Lake and the balance from INET's available cash, including about $174 million from Bank of New York.
In an effort to finance its part of the transaction, Nasdaq said it secured $750 million in six-year senior term debt, with JPMorgan and Merrill Lynch acting as joint lead arrangers and joint bookrunners.
In addition, Nasdaq obtained a commitment for $205 million in convertible notes to Hellman & Friedman LLC and Silver Lake Partners. The notes have a coupon of 3.75% and can be converted into shares of Nasdaq at $14.50 a share. Silver Lake and Hellman & Friedman will also receive about 1.56 million and about 650,000 warrants, respectively, to buy Nasdaq shares at $14.50 each.
Hellman & Friedman has also restructured the terms of Nasdaq's existing $240 million convertible notes and has extended the maturity date to May 2012. In addition, Hellman & Friedman lowered the coupon rate on the notes and lowered their conversion price. As a result, Hellman & Friedman will get about 2.75 million warrants to buy Nasdaq shares at $14.50 a share.
In its release, Nasdaq said the purchase will be accretive within 12 months of the deal's closing. Nasdaq added that Reuters Group PLC, which owns about 62% of Instinet, agreed to vote in favor of the deal.
In its own separate release, Reuters, of London, said it expects to receive net cash proceeds of about $1 billion from its 62% share orf Instinet Group. The British media company said it will return an amount equivalent to the $1 billion in net proceeds to shareholders.
Reuters added all parties involved in the Instinet deal will make an effort to finish the transaction be the end of the year. The company added its proceeds from the Lynch Jones & Ryan sale are included in the $1 billion figure.
In a separate press release Friday, Instinet said its INET will be combined with Nasdaq's current operations. INET, Instinet said, trades about 25% of the Nasdaq-listed volume daily. Instinet said the $1.88 billion purchase price comes to value its shares at $5.44 a share.
Instinet said the sale of its subsidiary, Lynch, Jones & Ryan, to Bank of New York for $174 million cash is subject to an additional $5 million payment in an earn-out based on a second quarter revenue target.
In yet another release, Instinet said its Institutional Broker division is also being purchased by a group of Instinet senior management, as well as Silver Lake. Instinet Group's Chief Executive, Ed Nicoll, will become chief of the newly purchased entity.
Nasdaq's shares have resumed trading and were recently up $3.10, or 29.1%, to $13.75, on Nasdaq volume of 4.8 million. Average daily volume is 662,438 shares.
Instinet Group's shares were recently down 49 cents, or 8.6%, to $5.21, on Nasdaq volume of 16.9 million. Average daily volume is 1.1 million shares.
In its own release, Bank of New York said it will operate Lynch, Jones & Ryan as a subsidiary of BNY Brokerage Inc., its agency brokerage. Bank of New York said its part of the deal is expected to close in June.
Instinet also provided preliminary first-quarter results Friday. Net income fell to $14 million, or 4 cents a share, from $22 million, or 6 cents a share, a year earlier.
Earnings from the most recent first quarter included $3 million in net investment gains, a $1 million reversal of a previously expensed severance charge and $1 million in advisory fees.
The 2005 first-quarter results included $3 million in net investment gains, a net $1 million reversal of previously expensed severance charges and $1 million in advisory fees.
The year-ago first-quarter results included a $5 million investment gain and a $5 million insurance recovery.
Nasdaq retained Thomas Weisel Partners LLC as its exclusive financial adviser. Skadden, Arps, Slate, Meagher & Flom LLP served as Nasdaq's outside legal counsel.
UBS acted as Instinet Group's exclusive financial adviser, while Wachtell, Lipton, Rosen & Katz served as its legal counsel.
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