Tullett tipped for MBO after bid talks end

ANALYSTS said Tullett Prebon is ripe for a private equity-backed management buyout yesterday after the inter-dealer broker said a trade sale was off.

The FTSE 250 outfit said discussions with a mystery third party, announced in March, had been “constructive” but agreement on the terms of an offer had been impossible.

Shares in Tullett tanked more than 12 per cent in morning trading as bid speculators fled the stock. One broker said a trade sale was unlikely because shareholders would be unlikely to accept an offer below 500p per share, a price tag that would be unappetising for a buyer.

But analysts believed an MBO of the business, led by City stalwart Terry Smith, was an option. Vivek Raja of Panmure Gordon said: “I can’t see a deal happening unless it’s an MBO.”

James Hamilton of Numis said: “Given the valuation, cashflow and substantial quantities of capital the private equity houses have to invest we do see the possibility an MBO backed by private equity could happen.”

The speculation came as Tullett revealed its interim results. Revenue was down 12 per cent to £312m in the four months to April but analysts took heart from an increasing revenue run rate amid higher market volatility.

Raja said: “That was the key thing. Volatility is Tullett’s friend, and sovereign debt concerns around the world are stoking business for them.”

Tullett also took a swipe at rival BGC Partners, saying broker defections in the US in the second half of last year as a result of an alleged raid by BGC shaved six per cent off revenues.

“The benefit from actions taken to mitigate the impact of the broker defections will increase during the year,” the firm said.

Shares in Tullett closed down 13.3 per cent at 314p.