Tullett buys ICAP’s voice broking business

By Roshni Menon

(Reuters) – British interdealer brokers Tullett Prebon Plc and ICAP Plc have agreed to combine their voice broking businesses in a 1.11 billion pound ($1.68 billion) deal to be more competitive in a sector where trading volumes have shrunk.

In a reverse takeover, Tullett is buying the global hybrid voice broking and information business of a much larger competitor, creating the largest player in the sector, while ICAP will focus exclusively on electronic trading and post-trade services.

Interdealer brokers, which bring together buyers and sellers of currencies, bonds and other tradable instruments, have been hit in recent years by regulations aimed at restricting the riskier trading activities of their traditional investment banking clients.

Traditional telephone brokerage services have also faced major reforms as regulators increasingly shift derivatives trading to electronic platforms to make the market more transparent.

“We continue to view the telephone business as a difficult business, but expect the combined company to have economies of scale,” analysts at BofA Merrill Lynch wrote in a note.

ICAP shares rose almost 7 percent, making them among the top gainers in the FTSE 250 Midcap index, while Tullett shares fell more than 9 percent.

Markets have become more volatile this year, driven by uncertainty about the timing of an interest rate change by the US Federal Reserve, as well as concerns about slowing economic growth in China, low commodity prices and geopolitical instability.

BGC Partners kicked off the consolidation among interdealer brokers this year with the takeover of US competitor GFI Group after a lengthy takeover battle.

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ICAP, one of the world’s largest interdealer brokers, was founded in the 1980s by its current CEO, British businessman Michael Spencer. The company has been in talks with Tullett for months.

Following the deal, ICAP will own 19.9 percent of an enlarged Tullett through the issue of new shares and its shareholders will own 36.1 percent. Tullett’s existing shareholders will own 44 percent of the new company.

Tullett will continue to operate under the name TPICAP and employ about 3,000 brokers and 2,000 support staff, Chief Executive John Phizackerley said in a phone call with reporters.

Tullett expects to save at least £60m by eliminating duplicate administration and support costs, with further savings expected over time. The company will assume the £330m gross debt of the ICAP division.

The slimmed-down ICAP will retain the electronic platforms EBS and BrokerTec, the transaction processing business Traiana and the post-trade risk mitigation businesses TriOptima and Reset.

By separating the voice broking business, the new ICAP will be able to hold less capital on its books and thus increase its potential for acquisitions and investments in start-ups, Spencer, who will remain chief executive, said in the conference call.

“This capital increase effectively meant that at some point the split of ICAP into an electronic post-trade business on the one hand and a voice broking business on the other was inevitable,” he said.

ICAP shares rose 5.6 percent to 498.1 pence at 1200 GMT. Tullett shares fell 8.1 percent to 330.0 pence.

(Reporting by Roshni Menon in Bengaluru; Editing by Gopakumar Warrier and Robin Paxton)