Betting big

New York, April 23 (Reuters): The Nasdaq Stock Market Inc and a consortium of investors have agreed to purchase Instinet Group Inc for $1.88 billion cash in a move that will intensify the already heated rivalry between the New York Stock Exchange and Nasdaq.

The deal underscores the rapidly evolving securities trading industry, and how fierce competition ? combined with recent changes to securities laws ? have become the impetus for consolidation among industry participants.

While Nasdaq?s deal was widely anticipated by market participants, market watchers were taken by surprise on Wednesday by a blockbuster deal merging the New York Stock Exchange and electronic trading company Archipelago Holdings.

The rivalry between the NYSE and the Nasdaq in their new incarnations is expected to intensify, analysts say.

?I would expect to see some relatively intense competition leading to lower prices, new innovation and trading technology in an attempt to woo the institutional investor community,? said Ian Domowitz, a managing director at Investment Technology Group, an independent brokerage firm.

Reuters Group Plc, Instinet?s majority owner, is selling its entire stake. Instinet?s electronic trading network will go to Nasdaq, while the institutional brokerage unit ? which will be headed by Edward Nicoll, Instinet?s CEO ? will go to Silver Lake Partners. Bank of New York will buy Instinet?s soft-dollar broker business of Lynch, Jones and Ryan.

Under terms of the deal, Nasdaq will pay $934.5 million and private equity firm Silver Lake Partners will pay $207.5 million. Bank of New York will pay $174 million, while the balance will come from Instinet?s available cash.

Instinet shareholders are to receive $5.44 per share ? a significant discount to where the company?s shares were trading mid-day on Friday.

?Instinet is the ideal partner to offer investors the best outcome? in the new environment of automated, instantaneous trading, said Robert Greifeld, Nasdaq?s chief executive officer, at a press conference.

?If you want to think about Nasdaq going forward, think about us being the dominant, leading equity market,? he said.

After resumption of trading, Nasdaq?s stock soared by more than $3, or more than 25 per cent, to $13.80. Instinet?s stock tumbled by 46 cents to $5.23, down 8.25 per cent.

Analysts ? some of which had predicted a price tag of at least $6 per share ? were surprised at the low price offered to Instinet. But Nicoll defended the final terms. ?This was the best deal we could negotiate on behalf of our stockholders,? he said. ?This was a fair price.?

The transaction is expected to close by the end of June. Reuters said it would return $1 billion to shareholders after the sale of Instinet is completed.