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Nasdaq buys eSpeed from BGC Partners

by Lou Whiteman | Published April 2, 2013 at 10:10 AM

Nasdaq OMX Group Inc. late Monday said it would buy the eSpeed platform from BGC Partners Inc. in a $1.23 billion cash and stock deal that would push the exchange into the electronic fixed income business.

eSpeed operates a fully-executable central limit order book for electronic trading of U.S. Treasuries. The company was spun out of Cantor Fitzgerald LP beginning in 2004. Terms of the deal include an upfront cash payment of $750 million, followed by Nasdaq issuing up to 15 million common shares over 15 years in earn out provisions.

The deal is part of a broader push by Nasdaq to diversify itself away from equities trading. The company in December paid $390 million for the investor relations and public relations businesses of Thomson Reuters Corp., and said this latest transaction would provide it a strong entry point into fixed income.

"We are building a diverse, customer-centric portfolio of corporate, trading, technology and information solutions," Nasdaq CEO Bob Greifeld said in a statement. The acquisition furthers our stated diversification strategy, and strengthens our commitment to deliver significant value to shareholders."

According to Nasdaq, U.S. Treasury volumes currently exceed $500 billion, and the exchange said it expects that figure to increase as the economy recovers and the Federal Reserve backs off of easing measures that many feel have artificially depressed the volatility of Treasuries. The exchange said it expects eSpeed to contribute to earnings within the first 12 months after closing, excluding transaction costs.

Post-deal eSpeed would be part of Nasdaq OMX Transaction Services business, which provides a market in equities, derivatives, exchange traded products and commodities.

New York-based BGC said that it would retain its voice, hybrid and other electronic trading along with market data and software businesses. The company in a statement said that the assets to be sold generated just under $100 million in sales in 2012, less than 6% of BGC's overall total, but the sale price is almost equal to BGC's fully diluted market capitalization.

"We think that the market was clearly under-valuing the assets of the company," BGC chairman and CEO Howard W. Lutnick said. "This transaction should better enable investors and analysts to place an accurate valuation on BGC's assets post-closing."

Nasdaq received financial advice from a Deutsche Bank AG team of Jason Gurandiano, Jon Ohrn, Jim Stynes and Jacques Raphael. A Skadden, Arps, Slate, Meagher & Flom LLP team led by Stephen Arcano and Jeffrey Brill and with partners Stuart Finkelstein, Sarah M. Ward, Yossi Vebman and Phyllis Korff provided legal counsel to Nasdaq.

BGC received financial advice from Cantor Fitzgerald & Co., with a Wachtell, Lipton, Rosen & Katz team led by David K. Lam and consisting of partners David A. Schwartz, Jeremy L. Goldstein and Joshua M. Holmes providing legal advice.

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