After months of talks, Strike Technologies and the Brass Utility (Brut)--a pair of electronic communications networks (ECNs) with disparate technology platforms and somewhat different target audiences--have signed a letter of intent to merge. Both ECNs expect to benefit from the increased liquidity that their combined volume will provide (ETW, 9/13/99), but they are not yet sure which technology platform they will use and have not yet settled on a name for the new entity. Until they hash out those details, Strike has agreed to put a freeze on other equity trading alliances it had been pursuing.
Officials at Strike decline to comment on the pending merger. But a source close to Strike says that prospective allies expect upwards of 40 million shares a day to be traded on the combined ECN. While asserting that the vendors will base their technology platform choice on customer demand and system functionality, the source says that a host of issues--including the future ECN's regulatory status--need to be resolved before the merger is finalized.
"Before you even get to the platform, there are differences in business plans and basic strategy that need to be worked out," says this source. "People think that 'oh, they agreed to merged.' So you take the chocolate and the coffee ice cream, throw it in the blender, and you've got Mocha. That's fine with ice cream, but not with technology. Its considerably more complicated."
The exact client composition of the new entity has not yet been determined. But one thing is clear: Strike--which has been negotiating to acquire a separate equity trading system--hopes the deal gets done very soon. "The letter of intent basically precludes us from doing anything else until we finish these negotiations," says the source
Strike and Brut both list some of the largest broker/dealers on the Street among their minority owners. As the deal is currently structured, Morgan Stanley, Merrill Lynch, Goldman Sachs and Knight/Trimark Group--minority investors in Brut---will own 30% of the new entity. Strike's 26 minority shareholders--which include Bear Stearns and Salomon Smith Barney--will get a 50% stake. SunGard Data Systems, the Wayne, Pa.-based trading and risk management vendor that currently owns 56% of Brut, will own the remaining 20% of the combined entity.
Of course, the alliance is not yet set in stone. Even something as seemingly small as the name of the new ECN could prove contentious. Brut has told some media members the new entity will be called the Broker's Utility. But the source says Strike has not given that moniker the green light. . "It sounds like a halfway decent name, but I think we should discuss it since it's a merger," the source quips.