Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The U.K.'s antitrust regulator has dealt a blow to Tullett Prebon's planned takeover of rival ICAP's voice broking business -- but it needn't be fatal.

Merger Welcomed
ICAP and Tullett Prebon's shares have outperformed the market since the takeover was announced
Source: Bloomberg

The sticking point is European oil broking, according to the U.K. Competition and Markets Authority, which said that customers in the 228 million-pound ($333 million) market would be adversely hit by a merger of two strong players. Oil's recent rollercoaster ride has been a nice earner for Tullett, whose purchase of oil broker PVM helped it to its first increase in annual revenue in five years.

Crude Cash-In
Growth in oil trading helped Tullett Prebon report its first year-on-year revenue rise since 2011 last year
Source: Company reports

One of the highlights of the deal for Tullett was growth in commodities. But a sale of ICAP's European oil business to placate regulators, while not ideal, wouldn't be fatal. Doing so would only cut about three percent from the combined company's projected revenue of 1.5 billion pounds in 2017, according to Numis analysts. That looks like a reasonable sacrifice in order to avoid a long delay to a much-needed merger.

Oil Sacrifice
If Tullett sacrifices ICAP's EMEA oil trading to seal this merger, the revenue pain would be limited
Source: Company reports, Numis estimate of ICAP's EMEA oil revenue

To understand why, look at the 19 other businesses where the two brokers overlap. The CMA said it found no significant competition issues in those areas, highlighting an environment of declining revenues. That alone should tell you how rough the business outlook is -- and the pressure brokers are under.

The banks' retreat from fixed income and the push by regulators to shift more trading onto exchanges are hitting interdealer brokers hard. Revenue at Tullett's big money-spinners outside commodities -- fixed income, treasury products and interest rate derivatives -- fell 4 percent to 10 percent in 2015. ICAP's biggest asset class by revenue, rates, shrank 4 percent last year.

Pressure Points
ICAP's annual revenue growth by asset class shows most fixed-income business under pressure
Source: Company reports

And given Tullett's obviously strong presence in oil trading, it might find a way to grab back any potential lost market share by expanding its existing operation organically. If it wants to add more staff, Tullett could also try to poach traders -- though it will want to tread carefully, given this is an industry where hiring raids can lead to costly lawsuits.

In sum, the decision isn't ideal for those wanting a clean consolidation. But while there's some nervousness on the market -- Tullett shares slipped to their lowest in four months, while ICAP slipped 1.2 percent -- the pressure on both parties to complete the deal is too great to let the deal timetable slip out of control.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Lionel Laurent in London at

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