James Rundle: The Tragic Romance of BGC and GFI

It’s a classic scenario: Broker One has worked with Broker Two for some time. They’ve shared some professional rivalry, cooperated a few times, interacted at industry events, and have mutual friends. Broker One harbors a secret crush on Two, but suddenly, it all goes wrong when Exchange A starts eyeing Two’s assets, and the pair decide to tie the knot after a whirlwind romance. Broker One resolves to break up the wedding with a public declaration of love. But Two shoots One down, so One has to win over their mutual friends before the deal can be sealed.
That’s the narrative that BGC Partners would probably like to present about its pursuit of rival broker GFI Group, which agreed to sell itself to the CME Group in July 2014. The deal was fairly unremarkable. A management consortium would buy back the brokerage part of the firm, CME would keep the technology assets, everyone’s happy—everyone, that is, except BGC.
Both are based in New York and operate broadly similar businesses. BGC approached GFI’s board with a $5.25 per-share, all-cash offer to acquire 100 percent of the firm, not including the 13.4 percent it already owned, but after negotiations collapsed, it turned hostile and appealed directly to the shareholders. It quickly became the story of an otherwise dry summer.
Tug-of-War
An increasingly bizarre series of events, followed, chronicled mainly through belligerent press releases, Securities and Exchange Commission (SEC) filings and quarterly earnings calls. A special committee of independent GFI directors rejected the proposal, and BGC didn’t get the shares it needed, so it extended the deadline from November to December. CME shrugged and tossed another few chips into the pile, raising its bid from $4.55 to match BGC’s $5.25. After avoiding sanction by UK authorities for buying up GFI stock without prior approval, BGC extended the deadline again to January and wrote to GFI, saying it would up the ante by 20 cents per share to $5.45.
CME has never hidden the fact that it just wants Trayport and Fenics, two important platforms in the energy and foreign-exchange (FX) trading sectors, and indeed, it has seemed rather blasé about the whole thing. GFI has been cartwheeling from development to development, and BGC is acting like it smells blood in the water.
Going electronic for the sake of it is not the answer to all of life’s problems. Just ask the equity markets
What’s not been in question at any point is whether GFI will be sold. It will, even if events take a dramatic (if unlikely) turn and neither suitor ends up winning its hand. The bloated interdealer broker space is ripe for consolidation, as pointed out by Icap CEO Michael Spencer in recent interviews. But there has been a lot of commentary about whether or not BGC’s offer can ever succeed. After all, an investment vehicle operated by GFI’s current senior management owns around 40 percent of the group’s shares, and it will be sweater weather in Hell before they pledge it to BGC’s offer, which requires 45 percent share approval to succeed. Likewise, certain conditions, such as acquiring control of GFI’s board, seem reasonable at face value, but can also be perceived as complex. Outside of the GFI/BGC tussle, the latter has also acquired UK broker RP Martin for an undisclosed figure, which heavily expands its FX firepower and enhances its geographical reach.
It can be seen as a win–win for BGC, whatever the outcome. The potential combination of GFI with BGC, along with its recent acquisition of RP Martin, would create an electronic-trading juggernaut. If it succeeds, it will go down in history as a daring and bold corporate raid. If not, BGC’s profile has been raised, and it successfully drove the media discourse to date without even commenting to the press outside of statements in public releases. But despite the fact that chairman and CEO Howard Lutnick has said the firm is “very, very serious” about its offer, it’s difficult to envisage a future where GFI doesn’t go off into the sunset with CME.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Emerging Technologies
Clearstream and SimCorp team up, Trading Technologies expands FX coverage, Bloomberg goes dark and more
The Waters Cooler: Google’s AI mishaps, a new liquidity source for ASX customers, and new integrations can be found in this week’s news roundup.
Bloomberg’s chatbots streamline external data sharing, OTC trading
The vendor details the expansion of chatbot support outside of a firm’s enterprise, and addresses user reservations about cost and spambots.
Symphony introduces Cloud9 mobile app
The messaging and collaboration platform is extending the “turret-like” technology and connectivity of Cloud9 to smartphones.
EU banks want the cloud closer to home amid tariff wars
Fears over US executive orders have prompted new approaches to critical third-party risk management.
Growing pains: Why good data and fortitude are crucial for banks’ tech projects
The IMD Wrap: Max examines recent WatersTechnology deep dives into long-term technology projects at several firms and the role data plays in those efforts.
Waters Wavelength Ep. 317: Bitdefender and Transilvania Quantum
This week, Bitdefender’s Adrian Coleșa and Transilvania Quantum’s Sorin Boloș join to discuss security vulnerabilities in quantum computing.
Investing in the invisible, ING plots a tech renaissance
Voice of the CTO: Less than a year in the job, Daniele Tonella delves into ING’s global data platform, gives his thoughts on the future of Agile development, and talks about the importance of “invisible controls” for tech development.
Evalueserve tames GenAI to boost client’s cyber underwriting
Firm’s insurance client adopts machine learning to interrogate risk posed by hackers