Collins Stewart does the splits after Smith fails to agree a sale

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The Independent Online

Terry Smith, the combative head of Collins Stewart Tullett, plans to demerge its stockbroking business and return at least £300m to shareholders after annual group profits almost trebled to a little less than £100m.

Mr Smith expects the broking business he built to command a market value of between £550m and £600m when its shares trade separately.

The Tullett "interbroker dealing" operation, which is the second-biggest broker of bond and currency trades between banks, is valued at an estimated £1.3bn. At present, the whole group is valued at only £1.5bn.

Both businesses are likely to become constituents of the FTSE 250 index after their split sometime between July and September.

The decision to break up the group was taken before new rules governing the amount of cash financial firms must set aside against risks they take. Collins Stewart Tullett expected these regulations, which will come into force in January, to force it to stash £300m extra should the group have remained intact.

Instead, a demerger will allow that cash to be returned to shareholders. The company will borrow to do so. A stand-alone Tullett is also likely to command a higher value than when it was part of a wider business.

Shares in rival interdealer brokers trade much higher in relation to earnings in the US. In the UK, the group's shares trade at a marked discount to Tullett's biggest competitor, Icap.

Shareholders will receive one share in each of the two separate businesses for every Collins Stewart Tullett share they hold.

The break-up will not see changes at the top. Mr Smith will remain chief executive of Tullett, which swallowed the rival Prebon Yamane, and chairman of Collins Stewart. Shane Le Provost, who took charge of the broking business last year, keeps the same job.

Last year, talks to sell Collins Stewart Tullett to private-equity groups broke down after they and Mr Smith failed to agree a price. Kohlberg Kravis Roberts, Blackstone and Hellman & Friedman were thought to have been looking at a joint bid.

Some City experts reckoned yesterday's decision to break up the group was likely to revive interest in the broking business among competitors and buyout specialists.

The chief executive of one of Collins Stewart's rivals said: "Terry has hoisted a 'for sale' sign over the stockbroking business. It's a good business. Every broking firm is going to take a look."

The American investment bank Bear Stearns is among those already interested, it was said yesterday.

Mr Smith said of a sale: "We have always said the same thing. We are here as custodians of shareholder value. If people are bona fide and we get a serious offer, we would consider it. The key words are 'serious offer'."

Plans for the split were accompanied by results for 2005, when Tullett soared while Collins Stewart trod water.

Revenues from interdealer broking surged to £676.4m, up from £464.9m in 2004. But revenues from stockbroking edged just £2.7m higher to £121.7m, as income from market making eased from £13.5m to £8m. This came after the departure of 14 workers in 2004 after a lock-in period ended.

"Collins Stewart started 2005 some way behind the starting line," Mr Smith said. "We put that right. We are no longer reliant on a few rich people coming to work."

At £97.6m, overall pre-tax profits almost trebled, as expected. They were driven by volatility in currency markets and interest rates.

But the lacklustre showing by the broking business and concerns over costs saw Collins Stewart Tullett shares ease 11.5p to 710p.

Mr Smith said that he remains optimistic. "We are substantially ahead of last year. We have got a good start in both businesses."

The company will pay a final dividend of 11p a share on 15 June, making a total for the year of 14p, 65 per cent higher than in 2004.

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