Icap, led by the Tory donor Michael Spencer, said it was considering the sale of its global broking business to Tullett in exchange for shares.
The division includes voice and electronic broking in areas including commodities, foreign exchange, equities and emerging markets. Tullett would issue new stock as part of a structure that would leave Icap holding a minority stake in the enlarged firm.
The discussions come amid tough conditions for interdealer brokers, who act as middlemen for the trading of securities between investment banks. Tullett Prebon blamed tighter regulation, low interest rates and subdued market volumes for its own woes as it announced plans to cut 5% of broking jobs amid cost cuts.
There were 1,573 brokers at the company at the end of 2014, according to the firm’s annual report, suggesting that nearly 80 people are to lose their jobs. Although the firm enjoyed a 13% rise in revenue to £671m between January and October, it warned that an anticipated decline in second-half revenue meant full-year underlying operating profit would now be 1.5% points lower than expected.
Talks over a deal have been going on for weeks, according to sources in the City of London. David Buik, a market commentator with Panmure Gordon and a former broker with BGC Partners, said the deal had been on the cards for some time.
“It makes a lot of sense to combine the prowess that Tullett has in the world of voice broking with Spencer’s unbelievable powers. As appetite for risk reduces, you need very strong units.”
But he warned a takeover could meet with opposition from regulators: “My only worry is whether the Competition Commission has anything to say about it. It would be an exceptionally large market in very few hands.”
If the deal materialises, it would be the second major shakeup in the industry after BGC paid £519m for GFI this year. “Discussions regarding the transaction are currently ongoing and there can be no certainty that any transaction will be agreed,” Tullett said.
Icap is fighting an £11m fine from the European commission for its role in the Libor rigging scandal.
This article was written by Rob Davies, for theguardian.com on Friday 6th November 2015 12.28 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010