BGC Partners to make $675 mln counterbid for GFI Group (updated)

Compagnie Financiere Tradition SA

09/09/2014 13:26

* BGC plans all cash offer for rival GFI Group 
    * Says to bid $5.25 a share for all outstanding shares 
    * Proposal valued at around $675 million 
    * Represents 15 pct premium to offer from CME Group 
 
 (Adds LONDON dateline, analyst comment, GFI declines to 
comment, shares, background) 
    By Clare Hutchison 
    LONDON, Sept 9 (Reuters) - New York-based interdealer broker 
BGC Partners  BGCP.O  plans to make a $675 million hostile bid 
for rival GFI Group  GFI.N , it said on Tuesday, topping an 
agreed offer for GFI from futures exchange operator CME Group 
 CME.O .  
    BGC, which already owns about 13.5 percent of GFI, said its 
proposed cash offer of $5.25 per share was more than 15 percent 
above the $4.55 per share all-stock bid made by CME in July.   
    Interdealer brokers match buyers and sellers of currencies, 
bonds and other tradable instruments, and analysts have long 
been expecting the industry to consolidate after it was hit by 
new regulations that have forced their traditional investment 
bank clients to cut back on risky trading activities. 
    The industry has also faced a challenge as regulators push 
more derivatives trading onto electronic platforms in a bid to 
make the market more open and safer, while low interest rates 
have dampened market volatility, adding to brokers' woes. 
    Combining with GFI would catapult the enlarged BGC to a 
strong No.2 industry position behind market leader ICAP  IAP.L , 
said Liberum analyst Justin Bates, who calculated that its 
revenues from electronic and voice broking would be just 14 
percent behind ICAP's and around 80 percent greater than those 
of next closest rival Tullett Prebon  TLPR.L . 
    "Strategically this is a very big prize for BGC and very 
meaningful for the industry," Bates said.  
    "(Tullett) will feel very threatened if BGC manage to win 
the day and so that in itself could compel it towards merging 
with (Swiss interdealer broker) Tradition  CTF.S ." 
    GFI's shares closed up 10.5 percent at $5.03 on the New York 
Stock Exchange on Monday.  
     
    CME OFFER  
    CME Group, the world's largest futures exchange operator, 
said in July it would acquire GFI in an all-stock deal worth 
$580 million and assume $240 million in outstanding debt, for a 
total value of about $820 million.  ID:nL4N0Q55EL  
    Under the terms of that transaction, Chicago-based CME plans 
to spin off GFI's wholesale brokerage business to a private 
consortium controlled by GFI management for $165 million in 
cash, and the assumption of around $63 million in other costs.  
    CME would then be left with GFI's energy platform Trayport 
and foreign exchange business FENICS.  
    "Our offer provides a materially higher, all cash price to 
GFI shareholders," BGC's Chief Executive Howard Lutnick said in 
a statement.  ID:nPrehxG4ta  
    "The pending transaction with CME deprives GFI shareholders 
of the appropriate value of their investment, because... (it) 
allows GFI management to purchase the brokerage business from 
CME at a discount," he added. 
    BGC said it had over several years expressed interest in 
acquiring GFI, most recently in July. It said that because of 
GFI's prior refusal to negotiate a transaction it was prepared 
to approach shareholders directly, but remained willing to 
engage with the GFI board. 
    In a letter sent Sept. 8 to the GFI board, BGC warned that 
any action it took "to impair the ability of your shareholders 
to accept our $5.25 per share offer ... would be a clear breach 
of the board's fiduciary duties." 
    Both GFI and CME declined to comment on Tuesday. 
    Liberum's Bates said he would not be surprised if CME Group 
submitted a revised offer that included both cash and shares. 
The value of the planned management buyout would also have to be 
raised to address criticism from BGC that the brokerage business 
was being sold off too cheaply, he added. 
    BGC, which was spun off from Cantor Fitzgerald LP in 2004,  
said its antitrust advisers Wachtell, Lipton, Rosen & Katz had 
determined there would be no material regulatory obstacles to 
its suggested deal.     
 
 (Additional reporting by Arnab Sen in Bangalore; Editing by 
David Goodman and Mark Potter) 
 ((arnab.sen@thomsonreuters.com)(within U.S. +1 646 223 8780, 
outside U.S. +91 80 6749)(3081)(Reuters Messaging: 
arnab.sen.thomsonreuters.com@reuters.net)) 
 
Keywords: GFI GROUP M&A/BGC PARTNERS