According to the CEO of Nasdaq
In the transaction, Nasdaq will acquire INET, which is an advanced computer trading system. The price tag is $934.5 million, and, as a result, Nasdaq will finance the transaction with approximately $950 million in debt from JPMorgan and Merrill Lynch. Moreover, the private equity firms of Hellman & Friedman and Silver Lake Partners will invest a combined $205 million in a private placement in Nasdaq stock.
Silver Lake has agreed to purchase the Institutional Broker business of Instinet for $207.5 million, and the Bank of New York will shell out $174 million to purchase Instinet's Lynch, Jones & Ryan, an agency brokerage business.
For Instinet shareholders, the value of the deal comes to $5.44 per share. And, on the news, the stock price fell 8.95% to around $5.19. Basically, Instinet was put up for sale about six months ago, and, apparently, there was already a premium built into the stock. What's more, it is unlikely for another bidder to come to the table for Instinet as there was a very competitive auction to sell the company.
For Nasdaq shareholders, the story was much more positive: The stock surged 26.10% to $13.43. Why the enthusiasm? Well, Nasdaq will standardize its trading system on the cutting-edge INET platform. Consequently, Nasdaq thinks there will be cost savings of roughly $100 million per year for the next few years.
The deal should also help compete against the NYSE Group, which will have the sophisticated trading platform of ArcaEx
On the conference call, the co-founder of Silver Lake Partners said that customers want "better, faster, cheaper." That is, the future of trading is much like the movie The Terminator. Machines will take over the exchanges -- fighting each other for more and more efficiency. With the Nasdaq and NYSE deals, the process seems all but inevitable.
Fool contributor Tom Taulli does not own shares mentioned in this article.