ICAP confirms sale of voice-brokerage to Tullett Prebon as revenues slide four per cent
ICAP shares soared this morning, up 5.64 per cent in morning trading after announcing it would sell its global voice-broking and information business to rival Tullett Prebon.
The sale redeemed the group's half-year results, which reported revenues were down four per cent in the six months ended 30 September, from £620m the year before to £595m.
However, trading profit before tax was up 17 per cent, to £101m.
On a constant currency basis, revenues from post trade risk and information operations increased by eight per cent and electronic markets by one per cent, which were offset by a decrease of 14 per cent in Global Broking, which ICAP is selling.
However, Tullett's shares sank 7.94 per cent, as investors digested chief executive John Phizackerley's decision to bet on the future of voice-broking.
Voice broking is the traditional method of brokers ringing up to connect buyers and sellers, which is being increasingly challenged by the rise of electronic trading platforms, which ICAP is focusing on.
ICAP will retain a 19.9 per cent stake in the voice broking business under Tullett, because, Michael Spencer ICAP group's chief executive said, “it will make a lot of money for me and my shareholders.”
Tullett will acquire all of ICAP’s Global Broking business in return for the issue of new shares in Tullett Prebon to a new ICAP holding company, ICAP 'New Company,' which won't be FCA-regulated, and to ICAP's shareholders, representing an aggregate 56 per cent stake, leaving Tullett shareholders with around 44 per cent of the enlarged company.
The merger is expected to deliver at least £60 million in savings, although in a conference call Phizackerley only said he didn't anticipate a “significant headcount reduction”. At present the firm employs some 3,000 brokers,
Tullett will become the largest hybrid voice and electronic interdealer brokerage, with revenues of over £1.5bn. Some 1,500 ICAP brokers will move to Tullett under the deal.
Spencer said: the deal was “very very significant and exciting, It's a win win for the industry as a whole: it needed consolodation,” in order to invest in new technology and counter growing headwinds from regulation.
Phizackerley echoed this, hoping to convince investors that voice-broking has a “very sustainable future” and consolidation makes for a “healthier ecosystem.”
Analysts at Bank of America Merrill Lynch said the results were “more good than bad,” although they missed recently-lowered expectations due to voice-broking margins being squeezed.
“We think the merger agreement has saved what would otherwise have been a difficult first half. The deal terms look positive for ICAP. We continue to see voice as a difficult business, but expect the merged entity to have scale benefits,” said the note.
In its results statement, ICAP referred to “ongoing challenging market conditions” which impacted the group's trading performance of the group, including “historically low interest rates, flat yield and bank de-leveraging [that] continued to constrain trading activity in Global Broking, adding some of the revenue loss within the Global operations was as a result of closed businesses as the group restructured.
The deal is expected to complete next year.