More on the The Hull Group acquisition by Goldman Sachs
Goldman to Buy Market Maker Hull Group for $531 Mln (Update3)
Bloomberg News
July 12, 1999, 1:55 p.m. PT
(Updates stock. Adds analyst comment and details on market
share in Europe and the U.S.)
New York, July 12 (Bloomberg) -- Goldman Sachs Group Inc. will pay $531 million for Hull Group Inc., giving the No. 5 U.S. securities firm a wider role in electronic markets.
Chicago-based Hull buys and sells futures, options and stocks electronically on 28 exchanges in nine countries. It's pushing for a greater share of such trading in the U.S. as more trading takes place on computers and not on exchange floors.
''Clearly the (move) around the world is for stock exchanges to go to more electronic trading,'' said Bob Steel, Goldman's co-head of equities. ''We wanted to be in the driver's seat and work with the leader.''
The share of Hull's net revenue that comes from electronic trading grew to 67 percent last year from 12.5 percent four years earlier, according to the company, which has 250 employees including software developers and traders. It had 1998 pre-tax income of $40.6 million on revenue of $103.1 million.
Hull holds 15 percent of the European market for equity index options contracts compared with 7 percent in the U.S.,Goldman said. It also has 17 percent of Europe's individual equity options market compared with 1 percent in the U.S.
The differences are because U.S. contracts are still largely traded using the open out-cry system, in which dealers exchange bids face to face, Steel said.
One of the Leaders
''Hull has good technology and they've always been one of the leaders in options trading,'' said Scott Appleby, a BancBoston Robertson Stephens analyst.
Goldman has taken steps before in electronic markets. Last month it joined with Merrill Lynch & Co., the biggest U.S. brokerage, and Bernard L. Madoff Investment Securities to start an electronic auction market for stocks. The company, called Primex Trading, will offer anonymous electronic trades starting at the end of the second quarter of 2000.
In addition, Goldman in March bought 22 percent of Wit Capital Group Inc., an online investment bank and broker that helps companies sell stock on the Internet.
The Hull acquisition is ''another development in their strategy to take advantage of new technology in all their businesses,'' said Raphael Soifer, an analyst at Brown Brothers Harriman.
Goldman's $3.7 billion stock sale in May gave it shares with which to make purchases. It will pay for Hull through an undetermined mix of stock, options and cash, said David Viniar, Goldman's chief financial officer.
Goldman said the acquisition, to be completed this fall, will be neutral or add to earnings this year. Goldman shares rose 1 1/8 to 68 3/8.
Volatile Business
The company had said in April it planned to build its asset management arm quicker than other parts of its business, aiming for the steady fees that smooth earnings, which are typically vulnerable to Goldman's large and volatile trading business. Hull's business will largely be classified as trading revenue, CFO Viniar said, although the purchase accomplishes another goal-- building the firm's technology base.
In the U.S., Hull is on the Chicago Board Options Exchange, the Chicago Mercantile Exchange, the American Stock Exchange, the Pacific Stock Exchange and the New York Board of Trade. It trades electronically on other exchanges, including the Nasdaq Stock Market, the New York Stock Exchange and the Philadelphia Exchange.
The firm also trades in Hong Kong, France, Germany, Japan, Norway, Sweden, Switzerland and the U.K. It was founded in 1985
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