Tullett Prebon plunges after sealing deal for Icap's voice broking business

Tullett will issue a parcel of new shares greater than its current share capital such that once the deal is completed, Icap will own 56% of the merged entity before distributing 36.1% of Tullet to its own shreholders.

Once the deal is concluded, current Tullett shareholders will own 44% of the enlarged company, 36.1% by Icap shareholders and the remainder by a NewCo holding company of the Icap business.

Tullett will also take on gross debt of £330m with the acquisition and the share issue means the deal is expected to be dilutive in first year.

After offloading its telephone-based 'voice broking' arm, Icap will be left with its electronic broking and post trade businesses.

Interim results from Icap, also released on Wednesday, showed revenue from post trade risk and information division increased by 8% on a constant currency basis and electronic markets by 1%, which was offset by a decrease of 14% in the global broking arm.

But Tullett's meshing together of the voice businesses is expected to achieve earnings-improving cost 'synergies' of at least £60m, from a business with a combined revenue around £1.5bn and underlying operating profit of £232m.

Icap chief executive Michael Spencer, who will take on the honorary title of president of the enlarged Tullett, said the voice business will benefit from improved scale, allowing for a significantly improved product suite and service for customers.

"Financial regulatory reform means that the global financial markets have profoundly changed and this Transaction means both companies will be better suited to meet the market's changing needs and better serve our customers."

Tullett Prebon CEO John Phizackerley added that the acquisition, as well as bringing significant cost synergies, gives the combined business greater client and product coverage and a stronger global footprint.

"It brings important benefits for clients, shareholders and staff and creates a strengthened platform to deliver our objectives of becoming the world's most trusted source of liquidity in hybrid OTC markets and the best operator in global hybrid voice broking."

As for Icap, whose interim results showed a total 4% decline in revenue, Spencer said the pure post-trade and electronic broking focus was the next natural step in management's recent strategy.

"Icap has a long history of investing in innovative products and new technologies. We have been at the forefront of the electronification of trading infrastructures and have continued to invest heavily in risk mitigation and efficient workflow solutions.

"This, combined with a top class management team with a strong track record of successful innovation, means that ICAP will be better positioned to capitalise on the increasing demand for electronic and post trade products and services."

On a continuing basis, Global Broking revenue was down 1% on the prior half year. For further details, please refer to the results press release on our website.

Analysts at Bank of American Merrill Lynch said the merger agreement saved what would otherwise have been a difficult first half for Icap.

"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. NewCo should be a relatively high multiple company, with a material weighting to post trade."

By 0920 on Wednesday, Icap's shares were up 6% at 500p, while Tullett was down over 8.1% to 329.6p.