Tullett Prebon Says It’s in Talks About Possible Sale (Update4)
March 10, 2010, 11:57 AM EST(Adds closing share price in fifth paragraph.)
By Gavin Finch
March 10 (Bloomberg) -- Tullett Prebon Plc, the British inter-dealer broker led by Terry Smith, said it’s in talks about a possible sale of the company.
Tullett is in “preliminary discussions,” the London-based firm said in a statement today without identifying the bidder. The most likely purchaser would be a stock exchange, according to Numis Securities Ltd. analyst James Hamilton.
“The conflict and competitive nature of banking means it is less likely to be a bank,” he wrote in a note to clients today. “Competition or size would prevent any inter-dealer broker from acquiring Tullett.”
Brokers such as Tullett and larger competitor ICAP Plc act as a go-between for banks that trade bonds, stocks, currencies, energy and derivatives. Buying a broker would allow a bourse such as London Stock Exchange Group Plc to expand in the over- the-counter market. Smith, the son of an East London bus driver, has been Tullett Prebon CEO since it split off from stockbroker Collins Stewart in 2006. The 56 year-old remains the firm’s the largest individual shareholder.
The stock jumped 26 percent to 390 pence in London trading, valuing the firm at about 839.7 million pounds ($1.3 billion) and Smith’s stake at about 33.6 million pounds. ICAP, the biggest broker of transactions among banks, rose 4.5 percent to 370.4 pence.
Before today, Tullett stock had dropped 25 percent over the past six months as Tullett brokers quit to join competitors and revenue from its equities division dropped. The firm is suing U.S. competitor BGC Partners Inc. for trying to poach brokers.
No Sale?
“Tullett Prebon won’t want to sell at its current valuation,” said Vivek Raja, an analyst at Panmure Gordon & Co. in London. “It isn’t an accurate reflection of the value of the business.”
The stock trades at about 8.5 times estimated earnings, less than the rest of the industry, Numis’s Hamilton said. The firm said on March 8 that full-year net income rose 17 percent to 110.8 million pounds as fixed-income trading revenue climbed.
Deutsche Boerse AG, owner of the Frankfurt stock exchange, is part-owner of Eurex AG, Europe’s largest derivatives market. NYSE Euronext owns the London-based Liffe futures exchange while London Stock Exchange Group Plc owns the EDX London Ltd. market. Nasdaq OMX Group Inc. says it operates the fourth-largest European derivatives exchange.
GFI Talks Ended
Tullett and New York-based GFI Group Inc., the largest inter-dealer broker of credit derivatives trades, ended merger negotiations in 2008. Australia’s Macquarie Group Ltd. and Bank of China Ltd. are considering offers, the Daily Mail reported earlier today, without saying where it got the information.
Nigel Szembel, a Tullett spokesman, declined to comment. Karen Smith, a spokeswoman for Macquarie, and GFI’s Patricia Gutierrez also declined to comment. Lauren Crawley-Moore, a spokeswoman for LSE, and Frank Herkenhoff, a spokesman for Deutsche Boerse also declined to comment.
Smith studied history at University College, Cardiff and considered teaching before heading to London’s financial district. He was a bank analyst in London from 1984 to 1989, then joined UBS AG in 1990 as head of research. He was fired after publishing a book called “Accounting for Growth” that questioned the accounting practices of some of UBS’s clients.
--With assistance from Nandini Sukumar and Alexis Xydias in London. Editors: Edward Evans, Francis Harris.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
