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11 November 2015
Shares in inter-dealer broker Tullett Prebon (TLPR) are down heavily this morning after it confirmed its acquisition (reverse takeover) of rival ICAP’s (IAP) hybrid voice broking unit. The £1.1bn all share deal is an attempt to fight a trend of waning profits within an increasingly automated industry and the negative share price reaction likely comes from markets factoring in a combination of acquisition risk and forced dilution from new shares being issued to pay for the deal. IAP and its shareholders are set to receive a hefty 56% stake in TLPR’s newly expanded share capital in a transaction designed to make it the biggest player in the Inter Dealer Broker industry.
With existing TLPR investors set to own just 44% of the new larger group the negative reaction is understandable, however, limited losses suggest faith in the new larger business from which synergies of £60m have already been identified. Scale benefits from an enlarged business are also likely seen helping boost revenues and counter the lower full year margins TLPR said it expected for its existing structure in Friday’s trading statement. Acquisition risk is always a possibility too, although this is likely limited given the two are in the same business. However, never say never. ICAP shares doing rather better (+6%) on the basis that it has a good exit strategy from a difficult business.
Mike van Dulken, Head of Research
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