Tullett, ICAP Brokerage Deal Hits Antitrust Hurdle

LONDON—Tullett Prebon PLC's £ 1.1 billion ($1.6 billion) deal to buy a voice-brokerage business from British rival ICAP PLC faces an inquiry from the U.K.'s competition watchdog.

The Competition and Markets Authority has referred the deal, which would significantly reshape the interdealer brokerage landscape in the U.K., for an "in-depth investigation" to determine if it reduces competition in the sector.

The investigation could take up to six months, a spokesperson for the regulator said on Tuesday.

The deal between longstanding rivals Tullett and ICAP, founded by high-profile City of London figure Michael Spencer, was announced in November last year.

The combination would create the world's largest interdealer brokerage house with revenue of £ 1.5 billion a year. Interdealer brokers—which match buyers and sellers of securities on behalf of investment banks—have struggled since the financial crisis. Tougher financial regulations have crimped the trading activity of banks on which the brokers were heavily dependent.

Despite fierce competition in the sector, Mr. Spencer said in November that the two companies had become "a happily married couple". Upon completion of the deal ICAP plans to begin trading as NEX Group with a focus on electronic trading and after-trading activities.

The CMA said its investigation will only focus on oil products where the merger might gives rise to "a realistic prospect of a substantial lessening of competition" as rivalry from other brokers is more limited.

Andrea Coscelli, CMA executive director of markets and mergers, said: "In this area, the parties have a strong market position, there is more limited competition from brokers and other electronic platforms, and the CMA has heard a number of third party concerns."

The CMA said there are 20 product categories in which the two companies' services overlap.

Arnaud Giblat, an analyst at Exane BNP Paribas, said that he doesn't see the CMA action as a "stumbling block" for the deal to close. A carve-out of the oil-brokerage business could be one possible solution, Mr. Giblat said.

Commodities represent roughly 20% of ICAP's voice-brokerage revenues, with the oil business representing a smaller percentage within that, he said.

Patrick Young, an exchange consultant and director at DV advisers, described competition concerns over oil and voice brokerage as "hardly material".

"There is no material impact and the investigation escalation is difficult to justify when applying even a local lens of perspective," Young said. "Given that the vast bulk of revenue at ICAP comes from the brokering of money, there may even be a form of relief at ICAP and Tullett that only oil voice-brokering is being targeted here."

He added that the merger changed "the entire market-structure parish and is a potential 'win-win' for both parties".

Tullett Prebon said it "intends to explore how best to satisfy the CMA's concerns." ICAP said it is "confident" the CMA will clear the deal.

Both companies said they still expect the transaction to close later this year.

(END) Dow Jones Newswires

June 07, 2016 09:25 ET (13:25 GMT)

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