What To Make Of M&A Activity At London Stock Exchange Group Plc, ICAP Plc & Tullett Prebon Plc

Here is what current M&A activity could mean for shareholders in London Stock Exchange Group Plc (LON: LSE), ICAP Plc (LON: IAP) and Tullett Prebon Plc (LON: TLPR)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The city has been awash with yet more M&A chatter in recent days, with ICAP Plc (LSE: IAP) agreeing the sale of its voice broking business to Tullett Prebon (LSE: TLPR) and speculation re-emerging that London Stock Exchange (LSE: LSE) could soon make a bid for the what’s left of ICAP.

Many shareholders will now probably be wondering what the future holds for them, whether the LSE purchase does or does not go ahead, so here is a brief overview.

Significant added value

After recently acquiring Frank Russell Company, the US firm responsible for the Russell Indices, LSE was able to make itself the second largest player in US listed ETFs, while consolidating its position as one of the world’s largest providers of index services.

The rumoured tie up with ICAP could see LSE expanding further by extending its reach into the realm of fixed income and currency markets.

In addition to adding anything up to £250m to operating profits, the purchase would also make LSE the world’s go-to organisation for US treasury trading, US dollar based currency trading and post trade risk or information services.

Last year’s all cash acquisition of Frank Russell saw the LSE group grow rapidly while reducing balance sheet leverage at the same time. This was despite the fact that it borrowed £600m to partially finance its purchase. Clever eh?

Given that the deal is little more than pure speculation at present, it is not clear how such a purchase would be financed. However, if LSE is able to pull off a similar coup again then the added value for shareholders would be significant.

A global leader

For Tullett shareholders, the biggest gain to come from the recent sale of ICAP’s voice broking business is probably the elimination of its primary competitor within a key area for the group.

While voice broking has been under pressure for some time, the spin off seems to present an opportunity for both companies in that ICAP jettisons the voice unit and Tullett becomes the global leader in this area.  

The purchase will be funded by an all share offer that is almost equal to the pre-purchase equity value of Tullett. This means that Tullet shareholders will own around 45% of the larger, post-purchase group, while ICAP shareholders will get 36% of the enlarged Tullett Prebon in return. 

The remaining ICAP group will also own a 19% minority stake in Tullett.

A big positive

First and foremost, ICAP shareholders will benefit from its disposal of the voice broking business because it will leave the group a lot more focused upon its key growth areas.

While it could lose up to 20% of its earnings in the process, ICAP would do this to become a hybrid fin-tech and finance business, which may then prompt investors to afford the shares with a higher valuation.

Any such valuation would probably be much closer to those of other financial technology businesses, as opposed to that of a financial institution.

Secondly, the group will at least reduce, but could even entirely circumvent, the need to hold regulatory capital buffers. This is a big positive for investors given the ever onward march of financial regulation in recent years.  

Overall, the deal to dispose of voice/global broking will probably be a net positive for shareholders, regardless of whether LSE Group decides to make a bid for the remainder of ICAP.

If LSE does bid, then it will need to take account of ICAP’s more focused structure when determining its offer price.

If it doesn’t bid, ICAP shareholders will probably benefit from recent events anyway, given the eventual re-rating or re-valuation that could occur, as technology and information services become an ever larger part of the business.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Skinner has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

With a P/E ratio of 9, is the Aviva share price a bargain?

Christopher Ruane looks at the Aviva share price and considers some strengths and weaknesses of the FTSE 100 insurance business.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
US Stock

Is it too late to buy growth stock Shopify after its 25% pop?

Up more than 40% this year, Shopify is on fire at the moment. Here, Edward Sheldon explains how he’d play…

Read more »

Investing Articles

Investors should consider buying this energy AIM stock, up 50% in the past year

AIM stock Afentra has seen a stellar price rise in 12 months to November. I believe there may be room…

Read more »

Investing Articles

2 ISA shares to consider for a large passive income!

Looking for dividend shares to buy in a Stocks and Shares ISA or Lifetime ISA? Royston Wild reveals two of…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

A Bitcoin investment that can be held inside a Stocks and Shares ISA or SIPP

UK investors can’t buy Bitcoin ETFs for their investment accounts or SIPPs due to FCA regulation. This stock could be…

Read more »

Entrepreneur on the phone.
Investing Articles

As the Vodafone share price slides 6% on lacklustre H1 results, what does the future hold?

After posting moderate results this morning, Vodafone saw its share price sink further, erasing this year's gains. Our writer looks…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing For Beginners

If I’d invested £5k in a FTSE tracker fund after the pandemic crash, here’s what I’d have now

Jon Smith explains the extent of his potential gains if he'd invested in a FTSE tracker fund during the Covid…

Read more »

Investing Articles

2 top shares I’ve bought for my Stocks and Shares ISA in November

This writer reveals a pair of fast-growing businesses that he's recently added to his Stocks and Shares ISA for the…

Read more »