NEX – IT LOOKS AS THOUGH IT WILL FALL IN TO THE CLUTCHES OF CME - OR IS THERE A TWIST TO THIS TALE?

 

I have always considered Michael Spencer to be not only a very shrewd business man, but also a lucky one and a person with a generous heart. Talent and luck work well together. Michael Spencer built ICAP up over 30 years to be the most progressive and innovative IDB in the world, bar none.  ICAP captured the derivative markets before most other brokers had woken up to how the financing of loans and the bond market had changed irrevocably. ICAP, having gone public in 1998 went into the FTSE 100 in 2006, such was the success of the company.

 

Michael Spencer introduced ICAP’S charity day in 1993 and over £140 million has been raised for charitable causes since then – a staggering feat. Unfortunately, ICAP was fined £55 million by the FCA in 2013 for a LIBOR misdemeanour, even though his staff were found not guilty in Court as individuals. Unfortunately, this prevented Spencer from receiving a peerage, which he richly deserved for charitable reasons, if not for an amazing contribution to the success of the City of London, which started before ‘Big Bang!’ ICAP’S business was split last year with the voice broking operation going to Tullett Prebon. The company was renamed TP ICAP. Spencer retained the tech broking side – renamed NEX.  Few prizes for guessing who was on the better side of this deal, though TP ICAP remains a power in the land of IDBs.

 

Few observers were ever comfortable with Deutsche Borse’s bid for the LSE. It was called off.  Once it was clear that Xavier Rolet was going, I was very keen on the idea of LSE either buying or merging with NEX with Michael Spence becoming CEO of the joint operation. I think it was always a non-starter. It would have been the perfect marriage! NEX’s prowess in fixed interest bonds and derivatives dovetailing in to the LSE and equities.  Spencer never really got any kind of a stranglehold on equities or futures over a long and distinguished career. It was never to be – or could the LSE come and talk to NEX about a tie-up – I think not; terms appear to have been agreed between the two parties. So, the CME will be scooping up NEX for £3.8 billion (circa £10 a share)?  NEX’S share price has rallied from 606p on 29th December 2017 to 972p yesterday. CME has agreed in principle pay £10 a share for NEX. The deal would be structured as a cash payment of £5 and 0.0444 new CME shares per NEX share. NEX said it would recommend the deal to shareholders.

 

CME buying NEX makes perfect business sense – the businesses look to be quite synergistic. Also, even though CME have a reputation for asset stripping and cutting costs to the bone, this policy may not be applicable in this case.  I suspect that any deal consummated between CME and NEX might exclude Spencer, which would be a great pity. He is a real City stalwart.  If all else fails, maybe Michael could be persuaded to run the LSE!  That would ruffle a few feathers!

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