Tullett Prebon’s Bid for ICAP Unit May Face Antitrust Probe

  • Decision delays ICAP plan to move away from shrinking business
  • Regulator sees competition concerns over oil broking products

The U.K.’s antitrust regulator may start an in-depth probe of Tullett Prebon Plc’s plan to buy an ICAP Plc brokerage unit unless the companies offer concessions to ease antitrust concerns over its oil-broking business. Tullett Prebon shares fell to a February low.

The Competition and Markets Authority said the 1.1 billion-pound ($1.6 billion) deal has "a realistic prospect of a substantial lessening of competition for the voice/hybrid broking of oil products" where the combined firm would face limited competition from electronic platforms, exchanges and brokers.

"Given the potential for this merger to adversely affect customers for voice/hybrid broking of oil products, we think the acquisition warrants an in-depth investigation unless Tullett and ICAP can offer suitable undertakings," Andrea Coscelli, the CMA’s executive director of markets and mergers, said in a statement.

The decision delays ICAP’s shift away from voice broking, a labor-intensive business that has suffered from shrinking margins and increased regulation. Tullett plans to make the combined business more profitable by cutting infrastructure, technology and operations costs.

The CMA said it had no concerns about 19 of the 20 overlapping activities between the two companies. It received complaints from unnamed companies about oil broking, it said. The company said in a statement that it would work to address the CMA concerns.

Shares of Tullett Prebon fell 2.7 percent in London, the lowest price since February 11. But Jonathan Goslin, an analyst at Numis Securities Ltd., estimates that the CMA’s review probably only puts at risk about 3 percent of the combined companies.

“I don’t think it’s a significant number,” Goslin said. “It’s not ideal, but it’s not a massive headache. In theory, it will probably resolve itself.”

ICAP said in a separate statement that it remains confident regulatory clearance can be obtained and that the transaction is on track to complete this year.

During a phase 2 investigation, the CMA can spend as many as 15 weeks gathering and analyzing evidence before publishing provisional findings. It will then spend another nine weeks considering responses before publishing its final report, according to its guidelines. These steps, plus the implementation of any remedies agree, is expected to take about 36 weeks.

ICAP Plc will rename itself as NEX Group Plc if it completes the deal, after chief executive officer Michael Spencer agreed to include the ICAP brand in the sale.

Voice broking was an essential component of markets such as credit derivatives and government bonds for decades. The arrival of electronic market makers has changed all that. The new breed of market makers pepper trading venues with quotes, enabling banks to complete trades without using a human intermediary. Voice broking has been relegated to more complex trades as a result.

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