NASDAQ OMX , the company best known for electronic trading of stocks, is expanding its exposure to the U.S. Treasuries market. On Monday, it announced that it has agreed to buy BGC Partners' "eSpeed" electronic U.S. Treasury trading platform for at least $750 million -- and potentially as much as $1.234 billion including "earn out" payments, if the business it's buying hits certain earnings targets.
The business in question trades U.S. two-, three-, five-, seven-, 10-, and 30-year Treasury bonds, generating close to $100 million a year in revenues for BGC -- and now for Nasdaq. As such, the price NASDAQ is paying is roughly 7.5 times sales -- and potentially as much as 12.3 times -- a sum far in excess of NASDAQ's own current market valuation of 1.7 times sales.
Such a large premium to NASDAQ's own valuation is likely to have a big effect on its shares when they resume trading tomorrow. It's already had a big effect on BGC, whose shares nearly doubled in after-hours trading in response to the company's confirmation that the eSpeed sale will give BGC a one-time gain of $750 million when it closes -- a sum greater than BGC's market cap at Monday's close.
Following the sale, BGC says it will retain all of its other "voice, hybrid, and fully electronic trading, market data, and software businesses, including voice, hybrid and electronic brokerage of off-the-run U.S. Treasuries, as well as Treasury Bills, Treasury Swaps, Treasury Repos, Treasury Spreads, and Treasury Rolls. BGC will also continue to offer voice brokerage for on-the run U.S. Treasuries."
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