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Title: New 'Heavyweight' to Emerge from Tullett Acquisition of Prebon
Feature: ORGANIZATION AND MANAGEMENT
Date: 31 May 2004

LONDON—Collins Stewart Tullett, the parent company of Tullett Liberty, will be acquiring rival inter-dealer broker Prebon Yamane to create a new heavyweight for the industry, say those involved in the purchase.

The deal, expected to close in October, will create the second largest interdealer broker behind industry heavyweight Icap. "We need another heavyweight in the business," says Patrick Keenan, an executive director of Prebon, who is slated to be chief operating officer (COO) for the combined trading group to come.

"It’s all agreed in principle, and to a reasonable level of detail, subject to due diligence," Keenan says. Heading the new organization will be Lou Scotto, Tullett Liberty’s CEO, who will oversee the businesses of both.

The deal is expected to be "mostly" in cash, which will be paid out to Prebon’s management team, which owns the company, Keenan says. "A price has been set with a formula attached based on performance," he says.

Although regulatory approval still remains to be granted, Keenan says he is not overly concerned that this will be a problem.

According to company reports, Icap had revenues of £801million ($1.47 billion) in the year ended March 2004. Tullett Liberty announced revenues of £427.4 million ($784 million) in the year ending 2003, while Prebon, a private company, has revenues of £300 million ($550 million), says Keenan, who adds that operating profits for Prebon were in the region of £17 million, pre-tax. According to a prepared statement, the combined group will have more than 3,000 staff in 26 cities around the world.

In terms of the strategy behind the deal, Keenan says there are two main ingredients.

The first is that Prebon, as a private company, has been very successful in recent times, outperforming its public rivals. However, he says that "as a private company, we have not had the ease of access to capital as some of our rivals."

Secondly, Keenan says that the need for IT investment is a growing one. "It’s getting harder and harder for smaller size brokers to fund the kind of IT development that is needed these days," he says. "What I’m happy about is that we can more readily invest in growth projects."

When asked if cost rationalization would also be a driver, Keenan dismisses the suggestion. "Tullett is particularly strong in fixed income, and we’re not," he says. "We’re number one in energy, and they’re limited in that space."

Keenan concedes that there are areas of mutual strength—mainly foreign exchange and derivatives. Tullett officials say they do not intend to merge the brokering businesses, or close any desks as a result of the deal. Instead, each desk will be evaluated in "the normal course," and staff will report to a combined management team.

As to issues regarding the integration and consolidation of technology platforms, it is too early to tell what will happen. "We haven’t taken any decisions on the technology," Keenan says.

Given the scale of this transaction, no further announcement is planned before September, when Collins Stewart is due to release its results for the six months to June 30, 2004.

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