Icap paying up to £180m for US bond dealing firm

Icap, the world's largest broker for investment banks, finalised a deal worth up to £180m yesterday to buy the electronic bond dealing arm of BrokerTec.

Michael Spencer, the chief executive of Icap, started talks with BrokerTec's 14 shareholders, which include Barclays, Credit Suisse First Boston, Goldman Sachs and Merrill Lynch, in May last year. Mr Spencer said: "This has been the most arduous and tiresome set of negotiations I have ever undertaken."

He said agreeing a deal with the 14 investment banks that own BrokerTec had been difficult to achieve. "But after this transaction we will be the largest interbroker and electronic broker, which puts us in a very powerful position," Mr Spencer said.

Icap acts as a go-between for banks buying and selling financial instruments such as derivatives, bonds and currencies, and trades volumes of up to $300bn (£186bn) a day. Its brokers complete trades of complex securities, such as credit default swaps, using the telephone, but Icap wants to expand its capacity to trade bonds electronically.

BrokerTec trades about $160bn of bonds a day and made a pre-tax profit of $14.9m in the first nine months of last year. Mr Spencer, who is also the largest shareholder in the spread betting firm City Index, said the acquisition would mean Icap would soon be making $200bn of electronic trades in bonds a day.

Icap plans to issue 12 million new shares initially to fund the acquisition, which would increase its equity by about 12 per cent. Depending on revenues at BrokerTec, another 6.7 million shares could be issued, taking the value of the deal up to £180m.

The US Department of Justice is still investigating BrokerTec over possible anti-competitive behaviour. The takeover by Icap has to undergo regulatory clearance and Mr Spencer hopes this will be given in March.

BrokerTec also owns a futures and clearing business but this will not be part of the deal. Icap has predicted buying BrokerTec will incur integration costs of £2.5m, but said the increased electronic trades would mean Icap would see its costs fall by at least £2.2m a year.

Icap was embroiled in a mud-slinging court battle last year, after it recruited three brokers from its arch-rival Cantor-Fitzgerald. Cantor sued Icap for poaching its staff, but the judge ruled only one of the three had been "unlawfully induced" to breach his employment contract. Icap is moving into Lehman Brothers' City office in Broadgate, London after the investment bank moves to its new headquarters in Canary Wharf, London later this year.

Shares of Icap, which rose 15 per cent in 2002, fell 8.5p yesterday to 959p.