Updated from 1:31 p.m. EDT
The battle for stock market supremacy wore on Friday with the
announcing its long-awaited acquisition of
( INGP), the grandfather of electronic trading.
The $1.89 billion cash deal, which involves several other buyers, comes just two days after the
New York Stock Exchange
surprised Wall Street with its acquisition of the
, another leading electronic marketplace.
The deal is valued at slightly less than the $1.95 billion market cap Instinet had before the announcement. Instinent shareholders will receive $5.44 a share, roughly a 7% discount to the $5.87 a share price the stock was trading at before the 1 p.m. EDT announcement.
Shares of Instinet fell following the news. In mid-afternoon trading, the stock declined 46 cents, or 8% from the Thursday closing price, to $5.25.
But shares of the Nasdaq were up strongly, rising $3.25, or 30%, to $13.90. Shares in the electronic stock market rallied on investor hopes that the deal with Instinet will enable the Nasdaq to keep pace with the changes at the NYSE.
The Nasdaq's purchase of Instinet had been speculated about for weeks and talked about for years. In fact, many on Wall Street were expecting a deal to be announced earlier this week. Instead, the Big Board stole some of the limelight from Nasdaq with the announcement of its own surprise deal.
In the transaction, Nasdaq is buying the Instinet electronic trading platform. Instinet's institutional brokerage division is being bought by Silver Lake Partners. The
Bank of New York
will acquire Instinet's Lynch Jones Ryan institutional trading subsidiary.
Nasdaq's share of the transaction is the biggest at $934.5 million for the electronic trading platorm.
In doing the deal, Nasdaq hopes to increase its market share and prevent trading activity from migrating to rival electronic trading firms. About a third of the trading volume in Nasdaq stocks is processed through electronic trading platforms such as, Instinet and Archipelago.
One of the consequences of the NYSE merger with Archipelago is that it will give the NYSE a chance to steal some of Nasdaq's business.
By acquiring Instinet, the Nasdaq hopes to blunt the NYSE's assault on its business model. In addition, it will give Nasdaq a bigger entry into pre-market institutional trading, something that has been a staple of Instinet's business.
"This transaction will allow Nasdaq to compete more effectively with other US and international market centers by making our technological platform more competitive,'' said Nasdaq CEO and President Robert Greifeld.
In the deal,
, which owns a 62% stake in Instinet, will receive about $1 billion and plans to return that cash to its shareholders.