Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 25, 2005 (April 25, 2005)
THE NASDAQ STOCK MARKET, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 000-32651 | 52-1165937 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
One Liberty Plaza, New York, New York 10006
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (212) 401-8700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Table of Contents
| 99.1. The Nasdaq Stock Market Inc. INET Acquisition Announcement Presentation, first publicly used April 25, 2005. |
Table of Contents
Table of Contents
Item 7.01. Regulation FD Disclosure.
On April 25, 2005, The Nasdaq Stock Market, Inc. (“Nasdaq”) publicly disseminated a presentation discussing the announcement on April 22, 2005 that Nasdaq had entered into a definitive agreement to acquire Instinet Group Incorporated and that it has concurrently entered into a definitive agreement to sell Instinet’s Institutional Broker division to Silver Lake Partners. As a result of these transactions, Nasdaq will own INET ECN. The investor presentation is attached as an exhibit to this Form 8-K.
The information set forth under “Item 7.01 Regulation FD Disclosure” is intended to be furnished pursuant to Item 7.01. Such information, including the Exhibit attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. The furnishing of this information pursuant to Item 7.01 shall not be deemed an admission by Nasdaq as to the materiality of such information.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
| 99.1 The | Nasdaq Stock Market Inc. INET Acquisition Announcement Presentation, first publicly used April 25, 2005. |
Page 2 of 3 pages.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: April 25, 2005 |
THE NASDAQ STOCK MARKET, INC. | |||
| By: |
/s/ Edward S. Knight | |||
| Edward S. Knight Executive Vice President and General Counsel | ||||
Page 3 of 3 pages.
Exhibit 99.1
The NASDAQ Stock Market
1,798,495,439
NASDAQ
INET Acquisition Announcement April 25, 2005
NASDAQ®
The best market for companies. The best market for shareholders.
Forward Looking Statement
Forward-looking statements in this Investor Presentation are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, The Nasdaq Stock Market, Inc.’s (“NASDAQ”) ability to implement its strategic initiatives, competition, economic, political, and market conditions and fluctuations, government and industry regulation, interest rate risk and other factors that are more fully described under the caption “Risk Factors” in NASDAQ’s form 10K for the year ended December 31, 2004, as amended and periodic reports filed with the SEC. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of date hereof. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events, or to report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
NASDAQ®
1
Agenda
Earnings and Guidance Update
Transaction Summary
Company Overview
Transaction Rationale
Integration Plan
Capital Structure
Conclusion
NASDAQ®
2
Quarterly Earnings and Guidance Update
($ in millions, except per share values)
Q1 Results
FY 2005 Guidance
Gross Margin $126.3 $480 - $490
Total Expenses $103.5 $408 - $418
Net Income $12.7 $38 - $44
EPS (Basic) $0.14 $0.38 - $0.46
Pre-tax Charges Associated with Cost Reduction Program $7.5 $22 - $25
NASDAQ®
3
Transaction Summary
Instinet Group
INSTINET
THE UNCONFLICTED INSTITUTIONAL BROKER
Purchased By
SLP Silver Lake Partners
$207.5 Million
inet
Purchased By
NASDAQ®
$934.5 Million
LJR LYNCH JONES & RYAN
Purchased By
The BANK of NEWYORK.
$174 Million
+
$562 million Excess Cash on Hand = $1.878 billion to Instinet Shareholders
NASDIQ®
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Transaction Summary
Acquisition of INET ECN by Nasdaq
Simultaneous transaction:
Instinet sells LJR for $174 million on or before the closing of Nasdaq’s purchase
Nasdaq purchases remaining Instinet Group for $1.878 billion
Nasdaq sells Instinet Institutional Brokerage to Silver Lake Partners for $207.5 million
Excess cash returned to INGP shareholders of $562 + $174 million from sale of LJR
Nasdaq effectively purchases INET ECN for $934.5 million
Timing of closing dependent on regulatory approvals
NASDAQ®
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Transaction Summary
Step 1: Initial Organization
Instinet Shareholders
Instinet Group, Inc.
ECN Holdings
LJR
VAB
LJR Buyer
SLP
Nasdaq
Step 2: Distribution of Cash
LJR Buyer
SLP
$174mm
$207.5mm
Instinet Group, Inc.
Nasdaq
$562mm
$174mm $207.5mm
$934.5mm
Instinet Shareholders
Total: $1,878mm
Step 3: Separation and Distribution of Components
Nasdaq
Instinet Group, Inc.
ECN Holdings
LJR
VAB
LJR Buyer
SLP
Step 4: End Result
Nasdaq
Instinet Group, Inc.
ECN Holdings
SLP
LJR Buyer
VAB
LJR
NASDAQ®
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Transaction Summary
Final Structure
NASDAQ® + inet =
The premier equities marketplace
The electronic marketplace
Superior execution opportunities for customers
Consolidation on to one trading platform in same timeframe as standalone
Efficient combined company with low cost structure to deliver returns to investors
Platform for future innovation and growth
Strong Competitor in post NMS world
NASDAQ®
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Financial Summary
NASDAQ® inet NASDAQ® Pro Forma
2004 Net Revenue $484.6 $112.8 (1) $597.4
2004 Net Income 11.4 20.3(2) 31.7
2004 Net Income to
Common ($1.8) $20.3(2) $18.5
(1) Net of rebates, soft dollars, brokerage and clearing costs
(2) Assumes 40% tax rate.
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Annual Total Expenses ($ in millions)
This is the expense reduction chart shown on our roadshow in February of 2005, updated for our 2005 expense guidance
We believe we will still achieve these levels of expenses in 2006 and 2007, even with the acquisition of INET ECN
Annual Expenses(1)
$900 $800 $700 $600 $500 $400 $300 $200 $100 $0
$43 $ 50 $6
$765 $ 675 $647 $476 $408-$418 $365-$383 $321-$344
2001 2002 2003 2004 2005 2006 2007
Nasdaq Guidance Deal & Other Incremental Expenses
Source: 8-K filed on 1/25/05. S-3.
(1) 2005 range based on guidance per 8-K filed on 1/25/05. 2006 and
2007 ranges derived by assuming between 10% and 12% decline (per guidance in 8-K) each year.
NASDAQ®
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Value Creation
Accretive in first 12 months through very achievable cost synergies
Significant accretion thereafter from over $100 million in annual synergies:
- Technology savings
- Clearing
- Corporate Overhead
- Revenue synergies from market data products
Nasdaq will consolidate on to one platform within the time period laid out in our technology roadmap
NASDAQ®
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Diverse Revenue Streams
INET ECN is primarily a transaction based business, but we will remain diverse in our revenue stream
NASDAQ 2004
78%
22%
Pro Forma 2004
69%
31%
Transaction Services
Recurring
Source: Company filings as of 12/31/04.
Note: Pro Forma results do not include potential synergies.
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Integration
Proven integration capabilities given successful Brut acquisition
We are confident in our ability to integrate on a large scale
We acquired Brut in Q3 2004, and reduced costs and headcount the next quarter
One trading platform within 12 months
Nasdaq is in the middle of our own strategic technology initiative
We have a specific roadmap to combined trading platforms
Significant portion of cost savings will come from integration of platforms
NASDAQ®
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Sources and Uses and Nasdaq Capitalization
Sources of Funds Amount
Cash from Balance Sheet $ 87.5
Debt 702.3
Convertible Note 205.0
Total Sources of Funds $ 994.8
Uses of Funds Amount
Instinet ECN Common Equity $ 934.5
Existing NASDAQ Senior Debt 25.0
Financing/Transaction Fees 35.3
Total Uses of Funds $ 994.8
Capitalization Pro Forma 3/31/2005
Cash $ 253.1
Senior Debt 702.3
Convertible Subordinated Note 445.0
Total Long Term Debt $ 1,147.3
Series C NASD Preferred 130.1
Shareholders’ Equity(1) 26.4
Total Capitalization $ 1,303.8
(1) Excludes deal related adjustments made at closing.
NASDAQ®
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Equity Financing
Two premier private equity firms are investing in Nasdaq in order to partially fund the purchase of INET ECN
H&F has reinvested its existing Convertible Notes and will commit an additional $60 million to NASDAQ
Silver Lake Partners is investing $145 million in NASDAQ in the form of Senior Convertible Notes
HELLMAN & FRIEDMAN LLC
SLP Silver Lake Partners
$305 Million Total Investment(1) $145 Million Total Investment
(1) Includes $240 million of existing investment.
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Structure of Equity Financing
The Senior Convertible Notes have been issued in order to achieve certainty of financing
Nasdaq has issued new convertible notes to H&F and Silver Lake; Nasdaq has a call option on the notes if the transaction does not close
$205 million is held in escrow; upon closing of the transaction, escrow is released and call option expires
Hellman & Friedman
$240 million Convertible Notes
Existing Notes:
$ 240 million due May 2006
$ 20.00 conversion price
4.0% coupon
Reinvestment of Existing Notes:
$ 240 million due May 2012
$ 14.50 conversion price
3.75% coupon
2.8 million warrants with 3 yr life
5 year non-call
New Notes
$205 million Convertible Notes
$145 million Silver Lake, $60 million H&F:
$ 14.50 conversion price, or a 36% premium(1)
3.75% coupon
2.2 million warrants with 3 yr life
7.5 year term, 6.5 year non-call
(1) Based on market closing price on 4/21/05.
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Conclusion
Nasdaq purchases Instinet ECN for $934.5 million
Institutional & Retail Investors will benefit from increased competition
Creates efficient company positioned to compete with
NYSE in a post NMS world
New investment in Nasdaq by Silver Lake Partners, re-investment from Hellman & Friedman
Significant cost synergies benefit shareholders
Nasdaq anticipates de-leveraging
NASDAQ®
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Appendix
1,798,495,439
NASDAQ
NASDAQ®
The best market for companies. The best market for shareholders.
NASDAQ Investment Highlights
Premier U.S. Equities Marketplace
Building Strong Operating Leverage
Successful Cost Reduction Strategy
Industry-Leading Technology
Diverse and Recurring Revenue Streams
Strategy in Place Designed to Drive Profitable Growth
Experienced, Innovative Management Team
Premier U.S. Equities Marketplace in Highly Competitive Environment
NASDAQ®
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The NASDAQ Stock Market - - Who We Are
Issuer Services
(42.5% of 2004 Gross Margin)
What We Do
List shares of approximately 3,250 public issuers
Trademark financial products, including NASDAQ-100 (QQQ)
Provide information services and products to listed companies
Revenue Generation
Listing, annual renewal, and additional shares fees
Licensing revenues
Corporate services fees
Market Services
(57.5% of 2004 Gross Margin)
What We Do
Collect, process and disseminate price quotes and trade information
Operate routing and trade execution systems
Revenue Generation
Market Access monthly subscription fees
Transaction execution fees
Trade reporting fees (currently shared with UTP participants)
Monthly and annual data subscription fees
NASDAQ®
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Premier U.S. Marketplace
Strong Brand and Reputation
Trusted brand name among market participants, institutions and public companies
Home to the Nasdaq-100 index, the basis of the QQQs ETF, the most heavily traded listed equity security in the United States
Premier equity listing venue for both industry leaders and growth companies
Enjoys a diverse base of listed companies across all industries
Representative Listings
Fifth Third Bank
YAHOO!
AMGEN
ebay
DELLTM
COMCAST
intel
The Computer insideTM
MICROSOFT
STARBUCKS COFFEE
Sears
STAPLES that way easy
Listing Base by Industry
Energy 2% Telecom 2% Utilities 1%
Materials 2%
Consumer Staples 3%
Industrials 11%
Information Technology 26%
Consumer Discretionary 12%
Health Care 18%
Financials 23%
Source: NASDAQ as of 12/31/04.
NASDAQ®
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Premier U.S. Marketplace Superior Trade Capabilities(1)
Faster Trades
Tighter Spreads
Execution Certainty
20
seconds
14.7
13.2
10
NASDAQ NYSE
2
1.59
cents 0.90
1
0
NASDAQ NYSE
100% 92.4%
at or inside 85.1%
Executed
%
0%
NASDAQ NYSE
NASDAQ is 11.4% faster
NASDAQ is 76.7% better
NASDAQ is 7.3% better
Source: Market Systems, Inc. SEC 11Ac1-5 data. As of September 2004. Note: Includes marketable orders of all sizes under 10,000 executed shares. In order for each reporting marketing center to verify data and ensure its completeness, 11Ac1-5 data is disseminated two months following the end of the reporting month.
(1) S&P 500 companies, all marketable orders, all order sizes under 10,000 shares.
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The Equity Market Opportunity
Both IPO and Trading Volume Showing Positive Momentum
Total IPOs
Total Shares Traded (BN)
497
10
40
378
6
28
447
344
97
8
36
58
92
4
42
46
84
3
27
54
241
10
148
1999
2000
2001
2002
2003
2004
152
5
73
74
193
5
87
101
249
6
105
138
303
6
133
164
379
7
170
202
485
8
204
273
718
13
263
442
795
16
308
471
821
16
363
442
794
17
352
425
840
17
367
456
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
NASDAQ NYSE AMEX
NASDAQ NYSE AMEX
Source: Thomson.
Source: NYSE, NASDAQ and AMEX websites.
NASDAQ®
22