ICAP and Tullet Prеbon Poised for Biggest Industry Merger

ICAP, a markets operator and provider of post-trade risk mitigation services, is poised to take majority stake in Tullett Prebon, a UK-listed inter-dealer money broker in one of the biggest deals of the year.

The deal will see a consolidation of the inter-dealer brokers, which represents the latest push forward in a rapidly contracting industry that’s been dictated to by a variety of forces, namely tightening regulations. With the two parties already in talks, details, as well as the deal itself could be announced as early as the following week according to a recent report on the Evening Standard.

At present, ICAP’s market value stands at a staggering $4.4 billion (£2.9 billion), which compares to only $1.16 billion (£765 million) for Tullett Prebon. However, the deal itself would ensure that ICAP’s broader electronic broking business would remain a sovereign entity, instead targeting the assimilation of its traditional broking business with Tullett, with ICAP assuming a majority stake.

Earlier today, Tullett Prebon released a somber trading update, which portended serious headwinds as well as outlining the challenges faced by its business. "Over the summer and through September and October the level of activity in the wholesale OTC financial markets has continued to be under pressure from the structural and cyclical factors affecting the inter-dealer broker industry. Market volumes continue to be adversely affected by the more onerous regulatory environment applicable to many of our bank customers whose trading activity has been suppressed by the deleveraging of their balance sheets and lower risk appetite," according to Tullett Prebon's recently released trading update issued over the London Stock Exchange Stock Exchange A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin A stock exchange, also known as a securities exchange or bourse represents is a facility where stockbrokers and traders can buy and sell securities.This includes shares of stock, bonds, exchange-traded funds (ETFs), or other financial instruments. By extension, stock exchanges can also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividendsStock exchanges have developed into a permanent fixture in the fin Read this Term (LSE).

An impending deal between ICAP and Tullett Prebon could also see aggressive savings between one or even both entities, which reportedly could generate upwards of $106 million (£70 million) in back office savings. Others are not ruling out a ‘survival of the fittest’ mentality in which the broking business would operate against each other with the strongest decks prevailing, whereby reducing laggards.

A potential deal between ICAP and Tullett Prebon would represent the second major one in the industry in 2015, following the landmark takeover of GFI Group by BGC Partners earlier this year for $788 million (£519 million).

UPDATE:

Tullett Prebon has since confirmed that it is engaging in ongoing discussions with ICAP regarding a possible acquisition by Tullett Prebon of ICAP's global broking business, which also includes ICAP's associated technology and broking platforms, i.e. iSwap and Fusion.

Finance Magnates will have more on this story as it develops.