Prebon deal meets snag

The money broker's plan to offload its electronics arm has been hit after a fallout with DLJ
Click to follow
The Independent Online

Prebon Yamane's hopes of reversing its technology interests into a quoted steel manufacturer are in jeopardy after a row with one of the money broker's advisers.

Prebon Yamane's hopes of reversing its technology interests into a quoted steel manufacturer are in jeopardy after a row with one of the money broker's advisers.

DLJ, the American investment bank, is understood to have fallen out with Prebon following Credit Suisse First Boston's takeover of the American investment bank.

Prebon is planning to do the deal with Firth Holdings, which is now a cash shell. The new company, which will be known as Kinetech, had been expected to be valued at up to £400m.

However, the deterioration in its relationship with DLJ has aroused suspicions that Kinetech will struggle to muster a valuation anywhere near this mark. Observers have identified a number of concerns with the proposed deal. Garban-Intercapital, for example, its quoted rival, which is thought to have superior technology and greater profitability, has a market capitalisation of only £266m.

Prebon's intention is to keep its traditional business - in which its brokers earned commissions as middlemen in inter-bank securities transactions - as part of its existing private company. But there are doubts that the proprietary electronic technology that would form the core of Kinetech's operations can justify such a lofty valuation.

There are estimated to be 40 other companies providing alternative electronic trading platforms. Kinetech will be pitched not only against incumbent operators like Garban-Intercapital and Cantor Fitzgerald - the American broker whose e-Speed technology is considered to be the market leader - but also against indirect competitors like media combine Reuters and Liffe, London's derivatives exchange.

Although Kinetech can rely on winning business from Prebon, there are doubts about how much this will be worth. Some of Prebon's principal products, like foreign exchange forward contracts and equity derivatives, which are not yet suited to electronic trading, may be inappropriate for "migrating" to Kinetech's platform.

There is a question mark over Prebon's future, given the consolidation which is sweeping the money broking industry.

Patrick Keenan, who will become chief executive of Kinetech, said Prebon's energy contracts, were expected to be suitable for electronic trading.

He said many rival operators were lacking the core flow of business which Prebon woud provide for Kinetech.

"Our underwriters are confident about this deal and think it has been well-received", he said. "We are looking to go ahead with it next month." He declined to comment on the relationship with DLJ, which declined to comment.

Comments