ICAP swoops on Tullett Prebon in huge broking merger

With an old adversary now out of the way, Michael Spencer is ready to join forces with main rival

Michael Spencer’s company has been fined £55m (Rex)

The multi-millionaire former Conservative Treasurer Michael Spencer is in talks over selling part of his Icap broking empire to rival business Tullett Prebon, it emerged yesterday.

Mr Spencer, worth an estimated £730m, has been eyeing the deal between the interdealer brokers – who buy and sell bonds and derivatives for the big investment banks – for some time as brokers are squeezed by lower trading volumes amid tougher bank regulation.

The talks – confirmed by Tullett after the London Evening Standard broke the story – will see Tullett issuing new shares worth more than its existing £800m market value to pay for Icap’s global broking business, which has more than 2,300 staff, and potentially putting a £1bn-plus price tag on the new business. Icap will become a minority shareholder, while Mr Spencer’s much larger electronic broking business remains separate.

The new broking business will be led by John Phizackerley, the current Tullett boss and former Lehman Brothers executive who broke the devastating news of the bank’s collapse to UK workers in 2008. It is understood Mr Spencer will take a backseat role in the new business, potentially taking an honorific title such as president, although talks between the two companies are “on a knife-edge”.

Industry insiders said the tie-up between the two companies could “never have happened” while Tullett’s former chief executive – the combative amateur boxer Terry Smith – was in charge.

The animosity between the two stretches back years to when Mr Smith led broker Collins Stewart, which bought Tullett Liberty and then Prebon in 2004 before spinning off Collins Stewart. In 2004 newspapers obtained emails with Mr Spencer attacking Mr Smith for an “autocratic management style”. Mr Smith still owns a 4 per cent stake in Tullett.

But since Mr Smith stepped down to concentrate full time on his Fundsmith fund management business, a deal has been back on the cards. “These talks have been going on for a while and I’m surprised it’s not come out yet,” said one source.

The tie-up would see three major players left in the interdealing broking space after BGC took over GFI – the broker founded by Essex-born Mickey Gooch – in April for $788m (£519m). The third company is Swiss-listed Tradition, headed by Patrick Combes, which Tullett attempted to buy in 2011. A senior industry source said: “Tradition looks like a Cinderella now. They need a deal but there’s nobody to dance with.”

The news of the deal lifted Tullett’s shares from a 12 per cent fall following a profit warning to end 9 per cent higher at 358.7p. The firm confirmed “it is in discussions with Icap regarding the possible acquisition by Tullett Prebon of Icap’s global broking business, including Icap associated technology and broking platforms”.

Sources said a standalone Icap would gain a higher rating from the City and potentially even attract bid interest from the likes of the LSE. A second source said the combination could generate least £70m in back office savings “for starters”.

Tullett revealed that it is taking an axe to about 5 per cent of its 1,400 front-office brokers, blaming poor trading on “more onerous” bank regulation, leaving revenues excluding oil broker PVM down 5 per cent year on year since July. Operating margins will be around 1.5 per cent below last year, prompting broker Peel Hunt to trim £12m off profit forecasts.

Michael Spencer, who was a former Conservative Party treasurer, founded his money broker firm in 1986.