BGC Announces Sale of its Platform for the Fully Electronic Trading of
Benchmark, on-the-Run U.S. Treasuries to NASDAQ OMX
BGC Conference Call to Discuss Transaction Scheduled for Today at 6 PM ET
NEW YORK, April 1, 2013
NEW YORK, April 1, 2013 /PRNewswire/ --BGC Partners, Inc. (NASDAQ: BGCP)
("BGC Partners," "BGC," or "Company"), today announced that it has entered
into an agreement pursuant to which it will sell its benchmark, on-the-run,
U.S. Treasury fully electronic trading platform to NASDAQ OMX Group, Inc.
(NASDAQ: NDAQ) ("NASDAQ OMX"). Total consideration for this transaction is up
to $1.234 billion, consisting of $750 million in cash plus an earn-out of up
to $484 million of NASDAQ OMX common stock to be paid ratably over 15
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BGC is selling only its on-the-run, benchmark 2-, 3-, 5-, 7-, 10-, and 30-year
fully electronic trading platform for U.S. Treasury Notes and Bonds. Over
time, BGC has built these six instruments into some of the deepest and most
liquid markets in the world. This platform, together with the directly
related market data and co-location businesses, generated just under $100
million in revenues in 2012. BGC will retain all of its other voice, hybrid,
and fully electronic trading, market data, and software businesses, including
voice, hybrid and electronic brokerage of off-the-run U.S. Treasuries, as well
as Treasury Bills, Treasury Swaps, Treasury Repos, Treasury Spreads, and
Treasury Rolls. BGC will also continue to offer voice brokerage for on-the
run U.S. Treasuries.
Howard W. Lutnick, Chairman and Chief Executive Officer of BGC Partners, said
"Since the formation of BGC in 2004, our business model has consisted of
investing in voice-only markets; introducing the technology that, along with
our brokers, creates voice, hybrid, and electronic marketplaces; and
converting our hybrid markets to fully electronic trading platforms. Today's
announcement clearly demonstrates that this process ultimately leads to
enormous value for our stockholders. The total consideration for this
transaction - up to $1.234 billion - is approximately equal to BGC's current
fully diluted market capitalization. This transaction demonstrates our
commitment to maximizing value for our stockholders, and we expect to consider
additional ways to further unlock value.
"The assets we are selling generated just under $100 million in revenues in
2012, and constituted less than 6 percent of our overall revenues for last
year - while analysts following us currently expect BGC to generate around
$1.85 billion in revenues for 2013. Consequently, we think that the market
was clearly under-valuing the assets of the Company. This transaction should
better enable investors and analysts to place an accurate valuation on BGC's
assets post-closing: our remaining voice, hybrid, and fully electronic
brokerage businesses and our market data and software products across our
Financial Services segment; our significant and growing Real Estate Services
segment; and the scale of our strengthened balance sheet. We will also have
the financial wherewithal to maintain our dividend for the foreseeable future
and to repurchase common shares or units."
"Despite the events of September 11, 2001, the global financial crises of
2008, and other challenges we have faced in the 15 years since we launched our
fully electronic platform for trading on-the-run, benchmark U.S. Treasuries,
BGC has succeeded in creating and growing this platform into a world-class and
leading brand in the financial markets. We are extremely proud of all that we
have accomplished, and can think of no better place for this platform to
further grow and flourish than NASDAQ OMX," Mr. Lutnick added.
Proposed Transaction Details
Under the terms of the purchase agreement, BGC will sell to NASDAQ OMX certain
assets, including the eSpeed brand name and various contracts comprising the
fully electronic portion of BGC's benchmark, on-the-run, U.S. Treasury
brokerage, market data and co-location service businesses. The agreement also
includes the employment by NASDAQ OMX of certain members of BGC staff and
BGC's Rochelle Park data center. These assets will be sold to NASDAQ OMX for
a purchase price of $750 million in cash, plus an earn-out of up to $484
million in NASDAQ OMX common stock to be paid ratably over 15 years following
the closing. Should certain acceleration events occur, including NASDAQ OMX
undergoing a change of control, whatever remains of the earn-out will be paid
immediately at that time.
BGC has agreed not to compete with NASDAQ OMX in fully electronic, on-the-run,
benchmark U.S. Treasury Notes and Bonds for 3 years following the close of
this transaction. BGC retains the right to use the trading technology it has
developed for this trading platform. BGC will continue to offer voice, hybrid
and fully electronic trading, market data, and software solutions across the
rest of its suite of financial products in Rates, Credit, Foreign Exchange,
and Equities and Other Asset Classes. After the close of the transaction, the
Company will also retain access to the trading, market data, and co-location
products related to the assets BGC is selling. The Company will also retain
its ownership stakes in ELX Futures and Epsilon Networks.
The one-time gain related to the $750 million payment is expected to be
accretive to BGC's GAAP earnings per share upon closing, but will not be
included in the Company's results for distributable earnings.
The transaction is subject to certain closing conditions, including receipt of
required regulatory approvals. The parties currently expect the deal to close
sometime in mid-2013, subject to receipt of such approvals.
BGC Partners' legal advisor in connection with the transaction was Wachtell,
Lipton, Rosen & Katz. Cantor Fitzgerald & Co. served as the Company's
Conference Calls to Discuss Transaction
BGC will hold an investor conference call today, April 1, at 6:00 P.M. Eastern
Time. A webcast of the call will be accessible at the "Investor Relations"
section of http://www.bgcpartners.com or directly at
http://www.bgcpartners.com/ir. Additionally, call participants may dial in
with the following information:
Date - Start Time: 4/1/2013 6:00 PM ET
U.S. Dial In: 866-202-0886
International Dial In: +1 617-213-8841
Participant Passcode: 1997-6698
Available From – To: 04/01/2013 08:00 PM ET - 04/08/2013 11:59 PM
U.S. Dial In: 888-286-8010
International Dial In: +1 617-801-6888
(Note: If clicking on the above links does not open up a new web page, you may
need to cut and paste the above urls into your browser's address bar.)
NASDAQ OMX also plans to hold an investor conference call regarding this
transaction, the details of which can be found in NASDAQ OMX's separate press
release discussing this transaction. Their press release was issued
simultaneously with this document, and can be found at
BGC Updates First Quarter 2013 Guidance
In addition, BGC today also updated its financial outlook for the quarter
ending March 31, 2013.
The Company expects that its financial results will be around the low end of
the range of its previously stated guidance for both revenues and earnings
when it announces its financial results for the first quarter on May 2, 2013.
The Company's first quarter outlook was first published in its financial
results press release dated February 14, 2013, and was as follows:
First Quarter 2013 Outlook Compared with First Quarter 2012 Results
* The Company expected to generate distributable earnings revenues of
between $440 million and $470 million, an increase of approximately 9 percent
to 16 percent compared with $403.9 million.
* BGC Partners expected pre-tax distributable earnings to be between
approximately $45 million and $55 million versus $58.2 million.
* BGC Partners anticipated its effective tax rate for distributable earnings
to be approximately 14.5 percent compared with 14.2 percent.
Commercial real estate services revenues and profitability tend to be lowest
industry-wide in the first quarter of a typical year and highest in the fourth
BGC Partners' first quarter 2013 financial results announcement is scheduled
to be issued prior to the market open on Thursday, May 2, 2013. Details for
how to access the call can be found at http://www.bgcpartners.com/ir.
Distributable Earnings Defined
BGC Partners uses non-GAAP financial measures including "Revenues for
distributable earnings," "pre-tax distributable earnings" and "post-tax
distributable earnings," which are supplemental measures of operating
performance that are used by management to evaluate the financial performance
of the Company and its subsidiaries. BGC Partners believes that distributable
earnings best reflect the operating earnings generated by the Company on a
consolidated basis and are the earnings which management considers available
for distribution to BGC Partners, Inc. and its common stockholders, as well as
to holders of BGC Holdings partnership units during any period.
As compared with "income (loss) from operations before income taxes," "net
income (loss) for fully diluted shares," and "fully diluted earnings (loss)
per share," all prepared in accordance with GAAP, distributable earnings
calculations primarily exclude certain non-cash compensation and other
expenses which generally do not involve the receipt or outlay of cash by the
Company, which do not dilute existing stockholders, and which do not have
economic consequences, as described below. In addition, distributable
earnings calculations exclude certain gains and charges that management
believes do not best reflect the ordinary operating results of BGC.
Revenues for distributable earnings are defined as GAAP revenues excluding the
impact of BGC Partners, Inc.'s non-cash earnings or losses related to its
equity investments, such as in Aqua Securities, L.P. and ELX Futures, L.P.,
and its holding company general partner, ELX Futures Holdings LLC. Revenues
for distributable earnings include the collection of receivables which would
have been recognized for GAAP other than for the effect of acquisition
accounting. Revenues for distributable earnings also exclude certain one-time
or unusual gains that are recognized under GAAP, because the Company does not
believe such gains are reflective of its ongoing, ordinary operations.
Pre-tax distributable earnings are defined as GAAP income (loss) from
operations before income taxes excluding items that are primarily non-cash,
non-dilutive, and non-economic, such as:
*Non-cash stock-based equity compensation charges for REUs granted or
issued prior to the merger of BGC Partners, Inc. with and into eSpeed, as
well as post-merger non-cash, non-dilutive equity-based compensation related
to partnership unit exchange or conversion.
*Allocations of net income to founding/working partner and other limited
partnership units, including REUs, RPUs, PSUs, LPUs, and PSIs.
*Non-cash asset impairment charges, if any.
Distributable earnings calculations also exclude charges related to purchases,
cancellations or redemptions of partnership interests and certain unusual,
one-time or non-recurring items, if any.
"Compensation and employee benefits" expense for distributable earnings will
also include broker commission payouts relating to the aforementioned
collection of receivables.
Beginning with the first quarter of 2011, BGC's definition of distributable
earnings was revised to exclude certain gains and charges with respect to
acquisitions, dispositions, and resolutions of litigation. This change in the
definition of distributable earnings is not reflected in, nor does it affect
the Company's presentation of prior periods. Management believes that
excluding these gains and charges best reflects the operating performance of
Since distributable earnings are calculated on a pre-tax basis, management
intends to also report "post-tax distributable earnings" and "post-tax
distributable earnings per fully diluted share":
*"Post-tax distributable earnings" are defined as pre-tax distributable
earnings adjusted to assume that all pre-tax distributable earnings were
taxed at the same effective rate.
*"Post-tax distributable earnings per fully diluted share" are defined as
post-tax distributable earnings divided by the weighted-average number of
fully diluted shares for the period.
BGC's distributable earnings per share calculations assume either that:
*The fully diluted share count includes the shares related to the dilutive
instruments, such as the Convertible Senior Notes, but excludes the
associated interest expense, net of tax, when the impact would be dilutive;
*The fully diluted share count excludes the shares related to these
instruments, but includes the associated interest expense, net of tax.
Each quarter, the dividend to common stockholders is expected to be determined
by the Company's Board of Directors with reference to post-tax distributable
earnings per fully diluted share. In addition to the Company's quarterly
dividend to common stockholders, BGC Partners expects to pay a pro-rata
distribution of net income to BGC Holdings founding/working partner and other
limited partnership units, including REUs, RPUs, PSUs and PSIs, and to Cantor
for its noncontrolling interest. The amount of all of these payments is
expected to be determined using the above definition of pre-tax distributable
earnings per share.
Certain employees who are holders of RSUs are granted pro-rata payments
equivalent to the amount of dividends paid to common stockholders. Under GAAP,
a portion of the dividend equivalents on RSUs is required to be taken as a
compensation charge in the period paid. However, to the extent that they
represent cash payments made from the prior period's distributable earnings,
they do not dilute existing stockholders and are therefore excluded from the
calculation of distributable earnings.
Distributable earnings is not meant to be an exact measure of cash generated
by operations and available for distribution, nor should it be considered in
isolation or as an alternative to cash flow from operations or GAAP net income
(loss). The Company views distributable earnings as a metric that is not
necessarily indicative of liquidity or the cash available to fund its
Pre- and post-tax distributable earnings are not intended to replace the
Company's presentation of GAAP financial results. However, management believes
that they help provide investors with a clearer understanding of BGC Partners'
financial performance and offer useful information to both management and
investors regarding certain financial and business trends related to the
Company's financial condition and results of operations. Management believes
that distributable earnings and the GAAP measures of financial performance
should be considered together.
Management does not anticipate providing an outlook for GAAP "revenues,"
"income (loss) from operations before income taxes," "net income (loss) for
fully diluted shares," and "fully diluted earnings (loss) per share," because
the items previously identified as excluded from pre-tax distributable
earnings and post-tax distributable earnings are difficult to forecast.
Management will instead provide its outlook only as it relates to revenues for
distributable earnings, pre-tax distributable earnings and post-tax
For more information on this topic, please see the table in BGC's most recent
financial results press release entitled "Reconciliation of GAAP Income to
Distributable Earnings" which provides a summary reconciliation between pre-
and post-tax distributable earnings and the corresponding GAAP measures for
the Company in the periods discussed in BGC's most recent financial results
About BGC Partners, Inc.
BGC Partners is a leading global brokerage company primarily servicing the
wholesale financial and real estate markets. Products include fixed income
securities, interest rate swaps, foreign exchange, equities, equity
derivatives, credit derivatives, commercial real estate, commodities, futures,
and structured products. BGC also provides a wide range of services, including
trade execution, broker-dealer services, clearing, processing, information,
and other back-office services to a broad range of financial and non-financial
institutions. Through its eSpeed, BGC Trader, and BGC Market Data brands, BGC
offers financial technology solutions, market data, and analytics related to
select financial instruments and markets. Through the NGKF brand, the Company
offers a wide range of commercial real estate services including leasing and
corporate advisory, investment sales and financial services, consulting,
project and development management, and property and facilities management.
BGC's customers include many of the world's largest banks, broker-dealers,
investment banks, trading firms, hedge funds, governments, corporations,
property owners, real estate developers, and investment firms. For more
information, please visit www.bgcpartners.com.
eSpeed, BGC, BGC Trader, Grubb & Ellis, Grubb and Newmark are trademarks and
service marks of BGC Partners, Inc. and its affiliates. Knight Frank is a
service mark of Knight Frank Limited Corp., used with permission.
Discussion of Forward-Looking Statements by BGC Partners
Statements in this press release regarding BGC Partners' business that are not
historical facts are "forward-looking statements" that involve risks and
uncertainties. Except as required by law, BGC undertakes no obligation to
release any revisions to any forward-looking statements. For a discussion of
additional risks and uncertainties, which could cause actual results to differ
from those contained in the forward-looking statements, see BGC's Securities
and Exchange Commission (SEC) filings, including, but not limited to, the risk
factors set forth in our public filings, including our most recent Form 10-K
and any updates to such risk factors contained in subsequent Form 10-Q or Form
8-K filings. These risks include those related to the possibility that the
transaction does not close in a timely manner or at all; the possibility that
the conditions to completion of the transaction, including receipt of required
regulatory approvals, are not satisfied; the possibility that any of the
anticipated benefits of the proposed transaction will not be realized; the
effect of the announcement of the transaction on BGC's business relationships,
operating results and business generally; general competitive, economic,
political and market conditions and fluctuations; and actions taken or
conditions imposed by regulatory authorities.
 The specific number of shares associated with this amount is expected to
be calculated upon the close of this transaction.
 As of December 31, 2012, BGC's fully diluted share count for both U.S.
Generally Accepted Accounting Principles ("GAAP") and distributable earnings
was 302.0 million, excluding the share equivalents associated with the
Company's Convertible Senior Notes.
 Based on Thomson-Reuters consensus data as March 29, 2013.
 A joint venture with Thesys Technologies to invest in the creation of
high-speed microwave data networks for the financial community. See BGC's
press release dated July 31, 2012, for more details.
SOURCE BGC Partners, Inc.
Contact: Hannah Sloane, +1 212-294-7938; or Sarah Laufer, +1 212-915-1008; or
BGC Investor Contacts, Jason McGruder, +1 212-829-4988; or Ben Goldman, +1
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