Arb-set

2 May 2005

It s become almost normal in the M&A world for final offers to come in below the price that markets expect. The rising importance of private equity firms as buyers, and of hedge funds as investors in targets, helps explain why.

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Investors in Instinet have pressured the chief executive of the electronic broker to explain why the company agreed to sell itself to rival exchange Nasdaq at a price below where its shares had traded before the deal.

Under the terms of the transaction, Instinet shareholders will receive $5.44 per share – 16% below the stock's recent all time high, and 8% below its average closing price over the previous six months.

Several other recent deals have also closed below market expectations.

In the first week of April, US oil group Unocal sold itself to ChevronTexaco for $62 per share $2 below its share price.

Spanish travel booking agency Amadeus also sold itself to a private equity consortium in January for E7.35 per share, less than a higher E8 per share offer some investors had expected.

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