Alliance Capital Sees An Opportunity In Reuters' Purchase Of Teknekron

Officials at Alliance Capital Management L.P.--a committed user of Teknekron Software Systems Inc.'s market data distribution platform--were pleased by Reuters Holdings PLC's acquisition of the systems integrator late last year, but remain wary of the deal's potential consequences. Meanwhile, technology officials and others at Fidelity Investment Services Inc. are keeping mum as to the future of their years-old relationship with Teknekron.

The purchase, for a hefty $125 million, has sent a tremor through the world of data distribution technology vendors and users. Not only has the number-one vendor in the digital data distribution market been snapped up the number-two vendor, but the buyer also happens to be the industry's dominant market data provider. For Alliance, Fidelity and other customers of the previously independent Teknekron, the purchase means their data distribution platforms will henceforth be maintained by the organization that sells them their data.

In announcing the deal, Reuters said that it would allow Teknekron to operate as an independent subsidiary--though Reuters executives will hold two seats on a five-person Teknekron board (Inside Market Data, Dec. 20, 1993). Already, however, some industry observers and representatives of user firms in the midst of platform evaluations have begun to view Reuters and Teknekron as a single entity--certainly when it comes to negotiating new business.

But with his firm's relationship with Teknekron already established, Alliance senior vice president and director of operations Ron Valeggia accepts Reuters' statement that it will let Teknekron operate independently. "The agreement, as I understand it, will do a lot to keep the existing management and development people in place for a fairly good period of time," he says.

According to Valeggia, Alliance approves of the agreement at least in part because of the "positive" relationship it has established with both of the former trading system rivals; Alliance uses Teknekron's TIB (Teknekron Information Bus) platform to distribute Reuters' Marketfeed 2000 and Selectfeed digital data feeds. Valeggia says that Teknekron officials met with the firm prior to signing with Reuters to alleviate any worries it might have about the deal.

However, Valeggia says that trading system users are aware of Reuters' potential to exploit the market by collaborating with its Teknekron subsidiary on market data platform contracts--especially with regard to prices. Though Valeggia says he is not "terribly concerned" about the potential for Reuters to take advantage, he asserts that Reuters is mistaken if it thinks it can manipulate users with its newfound power.

"I think it would be very ill-received if the industry, the investment community, were to get a sense [that] that was, in fact, happening," Valeggia says. "[Reuters] would be very remiss in underestimating the market and its ability to see through that."

Alliance, a subsidiary of Equitable Life Assurance Society, has used Teknekron's TIB for the past three years not only to support its traders, but also to provide users with access to the firm's current proprietary portfolio management system (IMT, March 6, 1992). What's more, Alliance intends to provide access to its future portfolio accounting system via TIB (IMT, Oct. 29).

According to Valeggia, Reuters' acquisition of Teknekron will benefit Alliance most by spurring the development of new products. "Many of the newer products that Teknekron had been working on--some of which we are very interested in--we think will receive a capital influx that will allow those products to either develop more quickly or develop with a consistent high standard over the time frames that we believe they are trying to complete those projects in," he says. "It gives [Teknekron] greater strength in meeting ... what was envisioned in the pipeline in terms of new product."

Valeggia also says he believes that with Teknekron now under Reuters' umbrella it will have no trouble sustaining growth. Over the past year, Teknekron has scored some major wins among the big Wall Street trading firms--in particular, at Goldman Sachs & Co. and J.P. Morgan & Co. Teknekron is only now gearing up to install systems for these users and many have speculated that the task was beyond the integrator's current staff levels. Teknekron claims to employ a total of 200 personnel worldwide. Other sources put that number closer to 150.

Meanwhile, Teknekron's older customers--such as Fidelity and Salomon Brothers Inc.--have not grown any less demanding.

"They've been very successful at attracting new business," Valeggia says. "I would have been very concerned about their ability to sustain the level of excellence they've shown in the past under that kind of load."