Collins Stewart pays £130m for inter-dealer broking firm

Collins Stewart Tullett yesterday unleashed an aggressive bid to become the City's dominant player in inter-dealer broking, the intensely competitive and high-pressure trading business inhabited by some of the Square Mile's most colourful characters.

Collins Stewart Tullett yesterday unleashed an aggressive bid to become the City's dominant player in inter-dealer broking, the intensely competitive and high-pressure trading business inhabited by some of the Square Mile's most colourful characters.

The company announced it had signed heads of agreement with the three shareholders of FPG Holdings, which owns the Prebon broking business. It will pay about £130m to buy the Prebon group of companies founded by Arthur Hughes in the mid-1990s.

The move will pit Terry Smith, the high-profile chief executive of Collins Stewart Tullett, against Michael Spencer, the equally high-profile and famously competitive chief executive of Icap, the market leader in inter-dealer broking.

In the year to the end of March, Prebon had revenues of £290m and made an operating profit of £17m. Tullett has revenues of £427m, bringing the combined businesses close to Icap's £800m of revenues.

Mr Spencer is not expected to take the news of the merger lying down, and management at Prebon is braced for a poaching war for the market's best talent as the two groups battle for dominance.

Patrick Keenan, one of the three FPG shareholders who will share the £130m proceeds from the sale, said: "He [Mr Spencer] will try to poach as a normal part of business, I will be trying to poach as well, so it's business as usual."

Last month Prebon launched a legal action against Icap in a £2m staff-poaching row involving a team of coal derivatives traders.

Mr Keenan will become the chief operating officer of the enlarged broking business under Collins Stewart Tullett ownership, while Lou Scotto, of Tullett, will be the chief executive.

Inter-dealer brokers do business only with other investment banks and specialise in some of the City's most obscure but nonetheless most fiercely fought-over markets such as foreign exchange, energy derivatives and fixed income securities.

Although FPG is not a highly indebted business, it does have an outstanding liability of £22m in relation to a previous merger with another broker, Marshall, in 1999. In the UK, Prebon trades mainly as Prebon Marshall Yamane, run by Tony Verrier.

Mr Keenan said the rationale for the deal with Collins Stewart Tullett was to allow a greater investment in crucial information technology systems and create a company of the scale to challenge Icap.

"This is a good thing for the industry," Mr Keenan said. "IT investment is a growing need and we need the scale to compete. Having the balance sheet and the ability to make acquisitions with paper [shares] will be an advantage. What the industry needs is a second company of that scale."

The Prebon group was born from a previously bankrupt business in the mid-1990s by Mr Hughes who bought out other shareholders to leave just three people controlling the business ­ himself, Mr Keenan and David Rutter.

Mr Keenan said he did not anticipate large job losses as a result of the merger and that the two operations, which together will employ nearly 3,000 people, largely complemented each other. They have offices around the world including in all the major financial centres as well as some of the more obscure financial hot spots such as Poland and the Czech Republic.

The inter-dealer broking market recently witnessed a number of high-profile court cases relating to unfair dismissal and accusations of staff poaching that have revealed details of high pressure, foul-mouthed workplaces fuelled by long after-work drinking sessions, visits to lap dancing clubs and drug use.

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