Evan Vitale Consulting: Tullett Prebon in Talks to Buy ICAP's Broking Business

The ICAP logo is seen on the company headquarters in London.
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The ICAP logo is seen on the company headquarters in London.

Photo:

Bloomberg News

Chiara Albanese and

Chiara Albanese

The Wall Street Journal

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@chiaraalbanese
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chiara.albanese@wsj.com

Giles Turner

Giles Turner

The Wall Street Journal

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Updated Nov. 6, 2015 9:48 a.m. ET

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LONDON–Interdealer broker Tullett Prebon
TLPR

6.66
%

PLC is in talks to acquire the global brokerage operations of ICAP
IAPLY

3.31
%

PLC to mitigate the impact of tougher regulations and a shift to automated trading which have sapped industry profits.

The deal could be worth more than £1 billion ($1.5 billion) according to a person close to the situation. Details are still being discussed, but an agreement would include ICAP’s technology and brokering platforms, according to company statements on Friday.

ICAP’s global brokering business, including the interest-rates trading platform iSwap, had revenue of £808 million pounds ($1.25 billion) in the year to end-March, compared with ICAP’s total revenue of £1.28 billion.

‘Continuation of low-interest rate conditions and compressed bond-market spreads in Europe has further dampened activity, particularly in interest-rate derivatives and fixed-income products.’

—Tullett Prebon statement

To finance the deal, Tullett would issue new shares, which would be mostly distributed to ICAP’s shareholders. Tullett currently has a market cap of £853 million.

Shares of both firms rose sharply after talks were confirmed Friday, as the deal was seen in favorable light for the squeezed brokerage business of the City of London.

ICAP and Tullett Prebon are among the world’s largest interdealer brokers and have both recently announced head-count reductions and strategic reviews of their business to bolster profit margins amid stricter banking and markets regulation and a widespread shift from voice to electronic trading.

Reacting to the same industry pressures, BGC Partners
BGCP

0.45
%

purchased GFI Group
GFIG

-0.33
%

earlier this year.

Brokers act as intermediaries between investment banks and investors by selling financial instruments such as bonds, currencies and derivatives.

“This is a potentially positive development,” said Neil Welch, analyst at Macquarie Capital. “Synergies could allow them to counteract the structural and cyclical” forces weighing down on the sector, though more details about the transaction are needed to see how it would create value for shareholders.

In an earlier statement Friday, Tullett said it was to cut about 5% of its voice brokers. “Continuation of low-interest rate conditions and compressed bond-market spreads in Europe has further dampened activity, particularly in interest-rate derivatives and fixed-income products,” Tullett said in the statement.

Michael Spencer, the main shareholder and chief executive of ICAP.
ENLARGE

Michael Spencer, the main shareholder and chief executive of ICAP.

Photo:

Bloomberg News

The firm, which appointed John Phizackerley as chief executive last year, said earlier this month that it expects its full-year underlying operating profit margin to fall from the year before.

ICAP, whose main shareholder is Michael Spencer, reduced the head count of its voice-broking business, and redeployed staff to electronic-trading operations and other areas of the business in recent months.

“Consolidation in this industry, and the disappearance of some names, is inevitable,” said Frederic Ponzo, managing partner of consultancy Greyspark. He described the pressure from the shift to electronic trading and regulation for the brokers as “massive.”

Write to Chiara Albanese at chiara.albanese@wsj.com

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