London Broker ICAP Agrees to Buy BrokerTec in $240 Million Deal
Mon Aug 5,10:11 PM ET
By Steven Vames
In a move that could shake up the way bonds are traded, London broker ICAP PLC said it will buy U.S. electronic broker BrokerTec Global LLC for roughly $240 million in stock.
The deal would match ICAP, the world's largest broker of money, bonds and derivatives, with BrokerTec, which has quickly grown into a major force in electronic brokering of U.S. Treasurys, Agencies, and Euro-denominated sovereign credits.
BrokerTec was launched in July 2000 by a consortium of 14 Wall Street bond dealers as an electronic bond broker to compete in an industry that was dominated at the time by Cantor Fitzgerald's electronic-trading subsidiary, eSpeed. Bond brokers trade bonds with major Wall Street dealers and banks. A big reason for BrokerTec's recent success is that the big Wall Street firms that own BrokerTec often encourage their traders to use the company's bond trading system, rather than rivals such as eSpeed.
Though BrokerTec has quickly become a formidable force in electronic brokering, it was among several firms that had raised concerns in Washington about the potential anticompetitive effects of dealers owning the pipeline through which they trade bonds. Those particular concerns could be allayed if the deal goes through, according to analysts.
"Together, ICAP and BrokerTec would provide a unique mix of brokerage services, and we expect the competitive environment in the fixed-income- brokerage industry to become even healthier as a result," said James Forese, chairman of BrokerTec.
ICAP's successes thus far in electronic realm -- through its hybrid voice- electronic system, ETC -- have been spotty. ICAP Chairman Michael Spencer said he expects the BrokerTec platform to largely supplant the ETC system. BrokerTec will continue to execute all-electronic interdealer trades for bond brokers and also will be incorporated into hybrid voice-electronic brokering.
BrokerTec recently reported that it handles about $140 billion a day in trades, compared with the roughly $15 billion of trades per day that ETC has averaged.
"This is a very big deal for us in terms of expanding in electronic trading," said Mr. Spencer.
Although the change for BrokerTec from bank-consortia ownership to broker ownership may resolve regulators' concerns about potential conflicts of interest on Wall Street, it could run into other hurdles in Washington. One concern is the sheer size and stature that ICAP will hold in the fixed-income-broking world, which is dominated by a handful of players.
ICAP's core strengths have traditionally been in global derivatives, money markets, and foreign exchange, and the acquisition of a large chunk of the world's Treasury and other sovereign debt volume is likely to be closely watched by regulators.
Though Treasury brokering itself was dominated for decades by Cantor Fitzgerald, regulators appear to have mandated more competition in brokering, evidenced by the Department of Justice ( news - web sites)'s investigation.
Cantor could stand out as one of the most-vocal critics of the ICAP-BrokerTec deal, some analysts said, as it competes directly with both ICAP and BrokerTec.
A Cantor representative was unavailable for comment.
Cantor also recently accused ICAP of exploiting Cantor's loss of its world headquarters and 658 of its employees in a poaching case over three brokers in London. Two of the three accusations in that case were recently dismissed by the court.
ICAP's purchase of BrokerTec won't include or affect the BrokerTec Futures Exchange service, BTEX, which will enter a license and service agreement with ICAP to continue using the BrokerTec platform. The deal also won't include BrokerTec Clearing Corp., the firm's trade-settling service.
As part of the agreement, ICAP will initially issue roughly 12 million shares, valued at $154.9 million. The deal includes an additional 6.7 million shares, valued at $86.5 million, to be issued after one year subject to undisclosed revenue targets for the BrokerTec trading platform over the first year of the purchase. The agreement calls for those ICAP shares to be held for an undisclosed period.
Write to Steven Vames at steven.vames@dowjones.com |
