And then there were three. Major global interdealer brokers that is, with Tullett Prebon (TLPR) set to buy the 'hybrid voice broking' business of ICAP (IAP), subject to approval from shareholders and competition authorities. The remaining two, BGC and Tradition, are based outside of the UK.
Hybrid voice broking involves a broker talking to a banking client on the phone while using a bespoke pricing screen for a particular transaction, such as an interest rate swap. This traditional business has been under serious pressure as regulatory-laden banking clients have reduced their trading activity.
Hence this major consolidation. Tullett will pick up ICAP's voice broking and information business, including its derivative trading platforms, which is the majority of the latter's revenue. The combined entity is to be called TP ICAP, while the remaining ICAP business will be rebranded.
The payment is newly-issued Tullett shares to be held by the company currently known as ICAP and its shareholders. Upon completion, those shareholders will own 36 per cent of the enlarged entity, while ICAP itself will own 20 per cent. "That is going to be an extremely good investment," predicts ICAP boss Michael Spencer, who will take the honorary title of president of the enlarged group.
The market seems to agree. Analysts at Bank of America Merrill Lynch labelled the deal a "transfer of value" to the remaining ICAP business, speculating that Tullett was paying for brand value as well as the important derivatives trading platform iSwap. Tullett's shares fell 8 per cent.
While the combined entity has promised cost synergies of at least £60m, and an earnings boost that should offset the share dilution within two years, there are concerns over the level of overlap between the two businesses in a tough trading environment.
Before the deal was announced, Tullett warned that the £671m of revenue booked between January and October this year was 13 per cent down on the same period last year, and that further revenue declines were expected to reduce the full-year underlying operating margin by 1.5 percentage points. Its response was to announce its latest reduction in its front office staff, looking to lose one in 20.
Tullett's chief John Phizackerley says the company has been conservative on its synergy estimates. He is looking to build, with plans to recruit the "next generation of brokers", as tech-savvy as they are client-focused.
